GMR in talks with Paris Aéroport, ADIA, PSP, KKR to sell stake in Hyderabad airport

MUMBAI: After inducting a Malaysian strategic partner in its power vertical, GMR is carrying out a similar exercise for its airports business. The conglomerate is in advanced negotiations with PE groups KKR and Apollo Global Management along with Abu Dhabi’s sovereign wealth fund ADIA and Canadian pension giant PSP Investments to sell a controlling stake in its Hyderabad airport.
The talks started after the infrastructure conglomerate revived plans to monetise the airport portfolio, deleverage its balance sheet and provide an exit to existing investors, said three sources aware of the ongoing discussions. The equity valuation of the Hyderabad airport is expected to be Rs 5,000-5,500 crore.

In a parallel development, the company has also re-engaged with French airport developer Paris Aéroport to sell up to 49% in GMR Airports, the holding firm for its airports business, for an estimated Rs 10,000 crore ($1.5 billion).

Paris Aéroport, formerly Aéroports de Paris (Paris Airports), owns and manages 14 civilian airports and airfields in the Paris area, including Charles de Gaulle, France’s largest airport.

GMR, among the country’s top indebted infra groups, holds 64% stake in Delhi International Airport Ltd (DIAL) and 63% in GMR Hyderabad International Airport Ltd (GHIAL). It also owns 40% in the Mactan-Cebu International Airport project.

Earlier this year, a consortium of TAV Airport Holding from Turkey and Paris Aéroport had submitted a term sheet for a stake in the holding company (holdco), when GMR ran a formal sale process to find a partner in the business, mandating investment bank Credit Suisse. Even though those talks had fizzled out, the French are believed to have come back to the negotiating table in the past one month.

The urgency to complete a transaction at the earliest stems from the fact that GMR Airports’ relationship with its three existing investors — Standard Chartered Private Equity, SBI-Macquarie Infrastructure Fund and JM Financial Old Lane — have turned frosty. The trio had invested a total Rs 1,458 crore in March 2011 by subscribing to compulsorily convertible preference shares (CCPS). They are now pressuring the company to pay the outstanding amount, which now stands at Rs 3,000 crore, and give them an exit, or face legal consequences.

GMR’s Hyderabad peer GVK sold 33% stake in its Bengaluru airport project to Prem Watsa’s Fairfax for Rs 2,149 crore this March while retaining a 10% holding. The GVK deal, analysts feel, has made GMR explore the sale of individual airports for the first time.

While the company plans to give an exit to existing investors, the planned divestments will also help it deleverage its balance sheet. The group has a net debt of Rs 41,550.6 crore as on March 31, 2016.

However, the sources cautioned there is still no guarantee that these discussions will lead to an eventual transaction, though most are hopeful that by December 2016 at least one of the two ongoing negotiations will close.

“There is no definitive development. However, we are in process of raising funds for the group to create liquidity and enhance shareholder value,” said a GMR Infrastructure spokesperson, adding, “Publishing such non-definitive news would impact our stakeholders including GMR Infrastructure Limited shareholders.”

Apollo, KKR, PSP and Abu Dhabi Investment Authority declined to comment.

Mails sent to Paris Aéroport did not generate a response till the time of going to press.

Analysts tracking the group feel selling the Hyderabad asset would be a lot simpler. “The problem in doing a holdco deal is the valuation of the land parcel at Delhi airport. Selling Hyderabad as a standalone asset is a far easier transaction,” said an analyst.

The airport vertical posted a total revenue of Rs 6,556 crore during the fiscal year ended March 31, 2016, as against Rs 5,469 crore in FY15. Of this, the Hyderabad airport clocked Rs 620 crore in revenues in FY16 — up 48% year-on-year — while its EBITDA (earnings before interest, taxes, depreciation & amortisation) doubled to Rs 370 crore.

EBITDA for the entire airports business jumped 40% year-on-year to Rs 2,387 crore in the last financial year. The improved financials come on the back of sustained increase in passenger traffic at both Hyderabad and Delhi. While Delhi saw 18% year-on-year growth to 48.5 million passengers in FY16, Hyderabad handled 12.5 million passengers — a 19% growth over FY15.

GLOBAL INTEREST
For global patient capital providers such as Canada’s PSP (which handles $112 billion in assets) or ADIA — an investor in Gatwick Airport — the interest in bankrolling or acquiring airport assets is in line with their strategy to target fast-growing, high-cash flow hubs. ADIA is currently finalising an investment in Rome Airport.

Paris Aéroport has also been scouting for global opportunities. It already owns 38% of TAV Airports, the leading Turkish airport operator that manages the Istanbul Atatürk International Airport as well as airports in Georgia, Tunisia, Latvia, Macedonia and Saudi Arabia.

KKR, incidentally, has already funded GMR’s promoters to the tune of Rs 1,000 crore through a structured debt deal in September 2014. It has been among the most active PE players in India, having invested approximately $1.7 billion in 11 transactions and has extended more than $3.2 billion of structured financing as of March 2016.

Apollo, which has also invested over a billion dollars in India, has backed a diverse set of Indian corporates along with its JV partner Aion Capital — including Dish TV, Welspun Group and Crompton Greaves. It recently backed Pramod Bhasin and Anil Chawla (former top executives at GE India) to buy GE’s commercial finance business in the country.

PSP Investments is in talks with Anil Ambani’s Reliance Infrastructure to buy a 49% stake in its electricity generation, transmission and distribution business in Mumbai and adjoining areas for a reported Rs 3,500 crore.

GMR has embarked on an asset sale to reduce debt and the drive is expected to continue, Citigroup said in a note. “It has sold a 70% stake in Island Power, Turkey airport, 30% stake in GMR Energy and few smaller road projects.

Management has outlined plans to sell more assets. However, company still faces multiple uncertainties and we believe it needs more deleveraging and improvement in operating cash flows,” Citigroup said in a June 1 note.