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GMR to spin-off airports business, eyes profitability in FY20

GMR on March 27 said it has signed a binding term sheet with a consortium of a Tata Group company, Singapore's sovereign wealth fund GIC and SSG Capital Management for raising Rs 8,000 crore in its airports business.

March 27, 2019 / 05:29 PM IST
 
 
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Viswanath Pilla
Moneycontrol News

GMR Infrastructure, that is raising Rs 8,000 crore from Tata Group, GIC and SSG Capital by selling a significant stake in its airport business, is now evaluating demerger of the vertical into a separately listed entity.

“The board has in principle okayed and advised us this the way forward,” said Sushil Kumar Modi, Group CFO, Strategic Finance of GMR referring to the demerger.

Modi said the process of demerger would start once the transaction with Tata Group, GIC and SSG Capital is consummated, and the board formally approves it. The company expects the demerger process to take around a year.

“There are investors who like pure play, they don’t like coming into a holding company which is very complex,” said Saurabh Chawla, Executive Director, Finance and Strategy for GMR.

“Energy is a different play, roads is a different play, airports are different, how does he evaluate it. When you have a pure play he will understand the business, become far more comfortable and give a much better valuation. It also helps to broaden the investor base,” Chawla added.

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Even the new investors who are coming on board, are believed to have been aligned with demerger proposal, said the official.

After the demerger of airports business, GMR Infrastructure will be left with energy, roads, SEZ and coal mines.

Focus on core

Airports business generates about two-thirds of GMR’s revenues and 90 percent of earnings before interest, tax, depreciation and amortisation (EBITDA) for the company. For nine months ended December 31, 2018, the airport business generated Rs 3,920.6 crore in revenue, while the other businesses contributed about Rs 1,975.77 crore.

The company also said it is evaluating a sale of six road assets, SEZ with a license to build a port in Kakinada, Andhra Pradesh and a coal mine in Indonesia where it has 30 percent stake.

The company, which was earlier contemplating an initial public offering, had a change of heart, with the funds expected to flow from Tata Group, GIC and SSG Capital.

GMR on March 27 said it has signed a binding term sheet with a consortium of a Tata Group company, Singapore's sovereign wealth fund GIC and SSG Capital Management for raising Rs 8,000 crore in its airports business.

There will be an equity infusion of Rs 1,000 crore in GMR Airports, while Rs 7,000 crore will be used towards the purchase of its equity shares from the listed entity as well as its subsidiary. The total valuation assuming all earn-outs will be around Rs 22,475 crore. This includes Rs 5,000 crore free cash flows on books of Delhi and Hyderabad airports.

The proposed investment is subject to regulatory and lender consents. After the transaction, Tata’s will hold a 20 percent stake for Rs 3,560 crore, GIC will have 15 percent for Rs 2,670 crore and SSG 10 percent for Rs 1,780 crore. GMR will provide exit to existing private equity investors—Macquarie-SBI Infrastructure Investments Limited, Standard Chartered Private Equity (Mauritius) III Limited and JM Financial Old Lane India Corporation that hold around 5.8 percent stake.

GMR will retain 54 percent controlling stake, with an option to increase it to around 62 percent if it achieves earn-outs of Rs 4,475 crore, by issuing fresh shares.

Deleveraging balance sheet

The proposed raising of funds is expected to come as a relief for GMR, which is struggling under a pile of debt and has been making losses for years.

The deal will help reduce the company’s consolidated debt of Rs 20,000 crore to Rs 12,000 crore and bring down the corporate debt substantially.

The corporate debt at the holding company level is at Rs 6,500 crore.

After the transaction, Modi said the company will turn “PAT positive” in FY20, with finance costs almost getting halved.

The finance cost of the company stood at around Rs 1,900 crore in the nine months of FY19.

In addition to the cash pile of Rs 5,000 crore, and the cash generation from aero and non-aero revenues that includes real estate monetisation at Delhi and Hyderabad airports, Modi said the company will be easily fund the capex for ongoing expansion at both the airports, without depending on too much debt.

GMR Airports is spending around Rs 14,000-Rs 15,000 crore on expansion of operating airports at Delhi and Hyderabad, in addition, it would need around Rs 4,000 crore for Goa and Nagpur Airports.

GMR airport portfolio has around 159 million passenger capacity in operation and under development, comprising of India's busiest Indira Gandhi International Airport in New Delhi, Hyderabad’s Rajiv Gandhi International Airport, Mactan Cebu International Airport in partnership with Megawide in Philippines.

While greenfield projects under development include airport at Mopa in Goa and airport at Heraklion, Crete, Greece in partnership with GEK Terna.

The GMR-Megawide consortium has won the Clark International Airport’s EPC project, the second project in the Philippines.

The company also recently received Letter of Intent for development and operations of Nagpur Airport on PPP basis and development and operation of a greenfield airport at Bhogapuram, Visakhapatnam in Andhra Pradesh.
Viswanath Pilla is a business journalist with 14 years of reporting experience. Based in Mumbai, Pilla covers pharma, healthcare and infrastructure sectors for Moneycontrol.
first published: Mar 27, 2019 05:29 pm

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