GMR to make $35million-$40 million equity investment in next 3-4 years in developing Philippines Airport

feBureau Posted online: Monday, Apr 07, 2014 at 0000 hrs
Mumbai : GMR Infrastructure Limited (GIL) will make an equity investment of about $35 million to $40 million over the next three years in developing Philippines' Mactan-Cebu International Airport.

In addition, GMR and its partner plans to double the passenger capacity to 14 million per year in the next three-four years, a GMR spokesperson told FE.

The consortium consisting of GMR and Philippines' Megawide Construction Corp was on Saturday officialy awarded a 25-year concession contract for the development of the South East Asian country's second largest airport which has been exceeding its current annual passenger capacity for the past few years.

The total investment in the project is pegged to be around $700 million. Out of this GMR has to contribute 40%, which amounts to about $325 million as upfront payment, said the spokesperson.  

"This would be likely in the proportion of 70% debt and 30% equity, which has not yet been finalized,” the spokesperson added.

"Our equity investment over the next three years on an average basis is expected to be around, I'm not talking about peak, peak can be slightly higher, but if, what would be averaged out over the next three years during the construction period, maybe of the order of about $35 million to $40 million.,” Sidharath Kapur, the company's chief financial officer – Airport, had said at a recent analyst call.

The GMR spokesperson mentioned above confirmed this.

Reacting to the development, shares of GMR Infra spiked nearly 5.5% to its three-month high on the BSE on Monday. The scrip closed at Rs 24.50 per share, up Rs 1.25 from the previous close. Trade volume increased nearly two-fold from its 30-day average volume. More than 1.54 crore shares were traded on the BSE and NSE on Monday as against 77.49 lakh shares traded in the previous 30 sessions. Shares of GMR Infra have risen 18.35% in the last one month. The stock has given returns of 130.04% after touching its 52-week low of Rs 10.65 on August 6, 2013. In contrast, the BSE 200 index has given returns of 22.74% and the benchmark 30-share Sensex has given returns of close to 20% since August.

As per Monday's closing price, the stock traded at 1.31 times its 12-month trailing price-to-book value and lower than its last five year's average price-to-book value of 2.19 times. Ten analysts have a buy rating on the stock, four have 'hold' and two have a 'sell' rating on the stock, according to an analyst poll conducted by Bloomberg.

Philippines had formally awarded the $390 million Mactan-Cebu International Airport rehabilitation, expansion and operation project to the GMR-Megawide Consortium for a 25-year concession period, on Saturday.

In the next three-four years, GMR and its partners will renovate Mactan Cebu's passenger terminal, which was originally built to handle 4.5 million passengers per year but touched the 7 million mark in 2013.

The consortium will also build a separate terminal over the next few years designed for international flights and operate the improved facility.

"The current capacity at the  Mactan-Cebu International Airport is around 5 million, while the traffic is around 7 million. In the next four years capacity will be increased to 14 million (annually),” said the GMR spokesperson.

The current revenue of the airport is around $35 million, added the spokesperson without elaborating the company's revenue outlook from the airport for the next quarter. However, GMR led consortium expects to generate cash from the airport from day one.  

"It (Mactan-Cebu International Airport) is a currently cash generating airport and there will be a cash generation from this airport from day one, which will contribute to the construction cost of the project and therefore our own equity contribution,” said Kapur during the above mentioned analyst call, adding, “We also intend to take up construction ourselves in partnership with other partners. So, there would become profitability coming in from that angle also.”

GMR's Airport business has posted a profit (profit after tax but before minority interest) of Rs 50 crore on net revenues of Rs 1,120 crore during the third quarter of FY14.