GMR spreads wings, eyes minority stakes in Myanmar, LatAm airports

Written by MG Arun | Mumbai | Updated: Oct 29 2012, 06:42am hrs
Bangalore-based infrastructure major GMR plans to pick up minority stakes in new airport projects in Myanmar (Burma), South East Asia and Latin America as it pursues an asset-light strategy to maintain healthy cash flows from global operations without adding on to its existing debt pile.

The group, which has faced a series of setbacks in airport projects in India and overseas, may also look to offload a stake in its airport business that contributes half its revenue of R8,500 crore. It is in preliminary talks with investors.

GMR has submitted an expression of interest for a 10% stake for an airport at Rangoon, Myanmars capital, with a local business firm KBZ as consortium partners, a top executive said.

We are cautious, and look at opportunities very closely, said Sidharath Kapur, chief financial officer (airports), GMR.

We would look at projects on a case-to-case basis. Its a question of price. We have to strike a balance.

He did not say how much the Myanmar project would cost, saying discussions are in very early stages.

Myanmar would be GMRs third overseas airports project. It has executed a project in the Turkish capital of Istanbul in consortium with Limak Holding, Turkey and Malaysia Airports Holdings Berhad (MAHB).

Also, in 2010, GMR, along with its sole consortium partner MAHB, won the concession for the $511 million Male' International Airport, defeating bids from the Anil Ambani group-led Mexico Airports Aeropuertos consortium and the GVK-Lughafen Zurich AG combine.

But work on the project was halted by a new government that captured power in Maldives in a coup this February and opposed all earlier privatisation bids.

The Mohamed Waheed government has threatened to cancel GMRs contract. The Male project had projected just 3-4% growth, but what we found attractive was the price, Kapur said.

So, its different things we look for in different projects.

In India, GMR operates the Delhi International Airport Ltd (DIAL) and the Hyderabad International Airport.

Infrastructure companies borrowed heavily as they vied for projects in highways, power and airports, but the economic slowdown, and lack of clarity in policies and fuel supply stalled many power projects and delayed roads. High interest rates made borrowings extremely costly, while delay in getting projects off the ground choked cash flow.

GMR had amassed a R32,900-crore debt, prompting it to freeze investments this fiscal, optimise costs, and maximise cash.

We will use our expertise to pick up minority stakes in projects, GM Rao, chairman, said in a recent interaction. We have gone for a re-organisation so that we are ready for the challenges for the next few years.

To add to GMRs woes, the government recently abolished the airport development fee (ADF) charged from fliers at the Delhi and Mumbai airports, a move that will impact its revenues from the business.

We will have to examine the issue. There are consequences when ADF is moved from the tarrifs, Kapur said.

Asked about the move to divest stake, Kapur said that the company is constantly in talks with investors, although there was nothing to announce at the moment.

Companies are expected to increase focus on operational efficiency and cost reduction measures, as well as on risk management, Ernst & Youngs seventh bi-annual Capital Confidence Barometer survey released on Saturday said.

Efficiency, cost control and risk management are crucial drivers of value and attracting greater attention today. At the same time, continued focus on organic growth reflects that confidence in the economys long-term growth story remains intact, said Amit Khandelwal, partner and national director, transaction advisory services, E&Y.

There is a slight increase in the percentage of companies planning to divest in the next 12 months to 20% currently from 16% in April 2012, which means more willing sellers at the deal table, the report added.