Tatas land into GMR Airports

Salt-to-software conglomerate Tata Group, which has significant investments in two airlines -- Vistara and AirAsia India, has entered the airport business by acquiring 20% stake in GMR Infrastructure's airport vertical.

GMR Infrastructure Ltd (GIL), which operates several airports in the country and internationally, including the ones in Delhi and Hyderabad, on Wednesday, announced a proposed investment of Rs 8,000 crore by Tata Group, an affiliate of GIC, Singapore's sovereign wealth fund and SSG Capital Management (SSG). The binding term-sheet signed with the investors spells out Rs 1,000 crore as equity infusion in GMR Airports Ltd (GAL), while the remaining Rs 7,000 crore is for the purchase of GAL's equity shares from GIL and its subsidiaries.

Tatas will own around 20% of GMR by investing Rs 3,520 crore, GIC will pump in Rs 2,640 crore for a 15% stake and SSG will chip in with Rs 1,760 crore for 10% in the company.

The deal values GMR Airports at over Rs 17,700 crore and post-deal, GIL and subsidiaries will hold around 54% in the airport arm while an employee welfare trust will hold about 2%. GIL plans to take its stake to 62% over the next five years, the company executives said.

According to the industry insiders, Tata Group has entered the airport business as India is one of the fastest growing aviation markets and has huge scope for investments. As per an estimate by aviation consultancy firm CAPA up to $45 billion of investment will be required for airport expansion and construction in India by 2030, to keep pace with the projected growth in airport traffic.

Devesh Agarwal, a Bengaluru-based aviation expert said that except for airlines all other businesses in aviation are profitable due to near-monopoly like situations either by government or private sector. "So big corporate groups like Tatas or Adanis definitely see value in airport business," he said.

The Adani group, which boasts of business interests ranging from ports, real estate, power, and defence, has been focusing on the airport business. Recently, Adani Enterprises is believed to have shown interest in buying 23.5% stakes of Bidvest and ACSA, two private equity partners of GVK Airport Ltd, in Mumbai airport. To keep Adani at bay, GVK, which has the first right of refusal, instead acquired both its equity partners' stakes.

Reliance Infrastructure too had tried operating a few small airports earlier during this decade though without much success.

Sushil Kumar Modi, group CFO -strategic finance at GMR Group told DNA Money that the proposed investment in GMR is subject to definitive documentation, customary regulatory approvals, lender consents and other approvals. The company has a debt of around Rs 20,000 crore. The company executives said that Rs 8,000 crore investment will primarily be used to service the debt.

Under the deal, GIL will retain management control over the airports business with the investors having customary rights and Board representation at GAL and its key subsidiaries. Saurabh Chawla, executive director, finance & strategy at GMR Infrastructure, said, "Board modalities are being worked out".

According to the company executives, the investors have pegged 100% equity valuation for GAL at Rs 18,000 crore. In addition to it, the earn-outs of up to Rs 4,475 crore linked to achievement of certain agreed milestones and performance metrics over next five years. Thereby the total valuation, assuming all earn-outs are successfully consummated, will be Rs 22,475 crore, an official said.

Also, as part of this transaction, GIL intends to provide an exit to existing private equity investors who hold 5.8% equity stake in GAL. "These investors have been holding on for very long and are seeking exit. We will commence communication with them on this," a senior GMR executive said.

However, an industry insider said Tata's investment is very significant for GMR as it is in deep financial stress. GMR has set up a very aggressive target for revenue this year from its Delhi airport business. "For Tatas it's a great opportunity to get into the airport business, and who knows they may start expanding aggressively from here".

Jayant Sinha, minister of state for civil aviation, had last year said that the airport infrastructure sector is set to get around Rs 1 lakh crore in the next five years. Airports Authority of India has an annual terminal capacity of 155 million passengers, which it intends to raise to 300 million by 2026-27. The government has an outlay of over Rs 50,000 crore for developing greenfield airports.