Debt burdened GVK Power and Infrastructure Ltd will sell the last of its stake in Bengaluru International Airport Ltd. (BIAL), approximately ten per cent, to Fairfax India Holdings, for Rs. 1,290 crore (about $200 million). BIAL is the operator of the Kempegowda International Airport.
In an announcement to the stock exchange the company said
“This is to inform you that the Board of Directors of our company vide its circular resolution dated, 2nd June, 2017 has approved the sale of residual 3,84,60,000 (Three Crore Eighty Four Lac Sixty Thousand) equity shares of INR 10/- (Rupees Ten Only) each (the ‘Sale Shares’) corresponding to 10% (Ten Per Cent) of the issued & paid up share capital in Bangalore International Airport Limited (BIAL) held by GVK Airport Developers Limited through Bangalore Airport & Infrastructure Developers Private Limited (BAIDPL), a step down subsidiary of the Company, to FIH Mauritius Investments Ltd (‘FMIL’) and / or its affiliates at an aggregate purchase consideration of Rs.1,290 Crore.”
In March 2016, GVK had agreed to sell a 33% stake in BIAL to Fairfax. That deal closed after some delay, earlier this year. GVK had retained the ten per cent, and management of BIAL. What changes will majority owner Fairfax bring remains to be seen.
We expect this transaction to be completed within the next 45 days.
GVK reducing debt burden
While GVK indicates, it wants to exit BIAL in order to focus on Chhatrapati Shivaji airport in Mumbai, and the upcoming Navi Mumbai airport, we suspect the main reason is to reduce the crushing debt burden of the group.
The group made investments at high premiums at the peak of the commodity boom including in Australia which have seen valuations tumble thanks to the slump in the iron ore and other commodity markets. The group has been under significant pressure from lenders to reduce its debt.
Dr. GVK Reddy’s statement that “we have decided to part ways with BIAL as deleveraging is top priority” seems to indicate, the financial demands of constructing a new airport in Navi Mumbai along with a new runway and a new terminal at Bangalore, must have proved too much for GVK.
Expect GVK to use the funds received from selling their stake in BIAL to reduce their existing debt so that they may take on debt for the Navi Mumbai airport.