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Last Updated : Jul 04, 2020 12:18 PM IST | Source: Moneycontrol.com

CBI books GVK: A once high-flying group is now having trouble staying aloft

Even before its charges filed by CBI, Hyderabad-based GVK Group was facing problems in running its airports. The charges could not have come at a more inappropriate time.

Gunapati Venkata Krishna Reddy, chairman of GVK Group. (Image: Forbes)
Gunapati Venkata Krishna Reddy, chairman of GVK Group. (Image: Forbes)

In today’s polarised world one regime’s hero could turn out to be another regime’s villain. Earlier this week, an FIR was filed against Gunapati Venkata Krishna Reddy, chairman of GVK Group, and his son Sanjay Reddy by the Central Bureau of Investigation (CBI). GVK Reddy was awarded a Padma Bhushan by the previous government in 2011. This award is given for ‘distinguished service of a high order’ by the President of India.

The charges against GVK who runs Mumbai international airport through his company (and minority shareholder Airport Authority of India) is that he allegedly siphoned off funds through a variety of ways. This includes allegedly misusing the reserve funds of Mumbai International Airport Limited (MIAL) of Rs 395 crore to finance GVK group companies. The expenditure of MIAL was also inflated by paying employees of other GVK companies not involved in the running of the airport. The total scam is alleged to be worth Rs 705 crore.

It is too early to say whether the CBI FIR will get converted to a charge sheet; and even if it does, whether it will be enough to convict GVK and his son in a trial. But from where he had started GVK, 83, has had a sharp ascent in life.

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Dams to Airports

A product of an agriculturist family from Nellore district of Andhra Pradesh, GVK began his life as a small time contractor. It was the time when many including those from GVK’s closely knit Reddy community were migrating to Hyderabad in search of more opportunities. Most of them were landowners and after earning money in farming had diversified to become small time contractors. Why to be contractors? This was because being a contractor involved handling the workers which was similar to supervising farm labour.

It was the first decades after Independence and following Nehru’s diktat that dams were the temples of modern India the Government of Andhra Pradesh began constructing the Nagarjunsagar dam, 150 km away from Hyderabad. GVK became a contractor in the construction of the huge dam where worked started in 1956 and completed only in 1970. He is said to have a made a fortune.

Soon he settled in Hyderabad, which was then virtually taken over by migrants (rich, poor and middle class) from coastal Andhra. With considerable foresight, he bought large swathes of land in Hyderabad, which would become very valuable in the years to come.

He also built a house for himself in Road Number 1 in Hyderabad’s Banjara Hills. He bought land and set up plush five star hotels and leased them first to the Oberoi group and then to the Taj group of hotels. GVK today owns four five -star hotels in Hyderabad; three of them are in Banjara Hills, an upscale neighbourhood.

After the economy was opened up in the 1990s, he diversified into biosciences and set up power plants. None of these companies are in fine fettle.

Power base for the Reddys

Andhra Pradesh had for long been a Congress bastion and the main power base was the Reddy community. GVK’s close relative T Subbarami Reddy (the latter’s daughter is married to Sanjay Reddy) was a minister in the Manmohan Singh government.

When the Mumbai and Bengaluru airports were opened for modernisation and privatisation, GVK landed the contracts. The Delhi and Hyderabad airports were awarded to the GMR group, whose owners too are from Andhra Pradesh. When all the four airports were handed over to companies originating in Andhra Pradesh, there was a lot of consternation all around.

Things came to a head many years later as the power equations changed in New Delhi and a new government came to power. GVK Group, whose experience before coming into airports was limited, eventually sold its stakes to the Toronto based Fairfax group, which incidentally is run by a Hyderabadi Prem Watsa.

When contacted, a GVK spokesperson said when airports were privatised in 2006 no one had any experience of running an airport and yet “GVK proved its mettle by building a world class facility at Mumbai airport”.

Even before its tango with CBI, the GVK was said to be facing problems in Mumbai airport. Conglomerate Adani Group purchased equity held by two South African companies named Bidvest and ACSA. However, Bidvest has now been barred from selling its stake by the Arbitral Tribunal.

The Adanis, who have recently bought into the Ahmedabad Airport, are said to be keenly interested to buy into the controlling interest in Mumbai airport. GVK Group seems to be hemmed in for the time being.

Thus the CBI FIR has come at an absolutely wrong time for them with none to bail them out for the time being.

Though the CBI case has nothing to do with this directly, GVK’s new project to build a new international airport in Navi Mumbai could also be adversely affected by this move. The group was awarded this project through its Mumbai International Airport Limited (MIAL) in early 2018.

CIDCO, the Maharashtra government agency partner that holds 26 percent of the equity in the new airport company, is to provide land for the project (1160 hectares). However, the land is yet to be handed.

CIDCO, according to people familiar with the matter, is dragging its feet because it feels that GVK is in financial problem. There is no official confirmation of this.

However, the financial closure of the project has happened and the EPC contract awarded to L&T Construction.

Kingshuk Nag is a senior journalist based in Hyderabad. The views are personal.
First Published on Jul 3, 2020 03:09 pm
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