Tata Group to hold 19.7% stake, GIC 14.8% and SSG 9.9% once transaction closes
After the Adanis, the Tata Group has entered the airports sector by joining Singapore’s sovereign wealth fund GIC and stressed assets investor SSG Capital Management to invest Rs 8,000 crore in GMR Airports, which operates the Delhi International Airport, the sixth largest in Asia. According to GMR Infrastructure, the parent firm of GMR Airports, the Tata Group will hold a stake of 19.7%, GIC 14.8% and SSG 9.9% in the latter when the transaction closes.
Thus the consortium will hold an overall stake of 44.4% in GMR Airports. For its 19.7% stake Tata Group will invest Rs 3,600 crore, GIC will invest Rs 2,600 crore for its 14.8% and SSG Rs 1,800 crore for its 9.9%. The total investment amount consists of an equity infusion of Rs 1,000 crore and Rs 7,000 crore to buy GMR Airports’shares from parent GMR Infrastructure and its subsidiaries.
Accordingly, GMR Infrastructure’s stake in GMR Airports will come down from 92% to 53.4% but it will continue to retain management control. An employee welfare trust will hold the balance 2.1% stake.The deal will help GMR Infrastructure reduce its net debt which stands at Rs 20,000 crore as on December 31, 2018. The Rs 7,000 crore will be used by GMR Infrastructure to repay its debt and the remaining to repay the airport unit’s debt, which will come down to Rs 1,000 crore from the current Rs 2,000 crore.
The airport operator has plans to invest Rs 9,000 for expansion work at Delhi’s IGI airport by 2022 apart from developing greenfield facility in Goa at an estimated cost of Rs 1,800 crore in the coming years. The company said that the post-money equity valuation of GMR Airports has been pegged at Rs 18,000 crore. In addition, the deal includes earnout payments of up to Rs 4,475 crore linked to achievement of certain milestones and performance metrics over the next five years. As a result, the total valuation assuming that all earnouts are paid, will be Rs 22,475 crore on a post-money basis, the company said. Once this happens, the stake of GMR Infrastructure in the airport unit will increase to 61.7% and the stake of the consortium will reduce from 44.4% to around 38%.
Further, GMR Infrastructure will provide an exit to its existing private equity investors who hold a 5.8% stake in GMR Airports. When the PE investors had invested in the airport unit, the deal was valued at Rs 21,000 crore.
GMR Infrastructure said that following the current transaction, it plans to demerge its energy, highways, and urban transportation businesses thus separating its airport business.
GMR’s airports business posted a profit before tax of Rs 365 crore for the December 2018 quarter, compared to a profit of Rs 353 crore a year earlier. The GMR airports deal marks the entry of a second major corporate group’s entry into the airport sector this year. Earlier, the Adani group won bids to operate five airports owned by state-owned Airports Authority of India across the country. However, the final approval to the bids is hanging with the model code of conduct for general elections coming into force. Thus far, private airports in the country have been kind of a duopoly between GMR and GVK Group, which runs the Mumbai International Airport.
Fairfax Holding of Prem Watsa runs the airport in Bengaluru having bought it from GVK. The Tata Group runs two airlines in the country — Vistara and AirAsia India — in partnership with Singapore Airlines and Malaysia’s AirAsia Berhad.“The proposed investment endorses the strength of the unparallelled airport platform created by GMR group and will reduce our debt substantially, strengthening our balance sheet,” Grandhi Kiran Kumar, managing director and CEO, GIL, said. On Wednesday, GMR Infrastructure’s share price closed 0.26% down at Rs 19.40 on the Bombay Stock Exchange.