Tata Group, GIC-Led Consortium To Invest Rs 8,000 Crore In GMR’s Airports Business

The company plans to de-merge its airport business — which contributes 60 percent of its revenue — into a separate entity.

The  102-meter  air-traffic control tower stands at Indira Gandhi International Airport, now operated by the GMR Group (Photographer: Prashanth Vishwanathan/Bloomberg)
The 102-meter air-traffic control tower stands at Indira Gandhi International Airport, now operated by the GMR Group (Photographer: Prashanth Vishwanathan/Bloomberg)

GMR Infrastructure Ltd. today announced that a consortium of a Tata Group company, Singapore's sovereign wealth fund GIC and SSG Capital Management have agreed to invest around Rs 8,000 crore in its airports business.

There will be an equity infusion of Rs 1,000 crore in GMR Airports Ltd. while Rs 7,000 crore will used towards purchase of its equity shares from the listed entity as well as its subsidiary. GMR said the proposed investment is subject to definitive documentation, lender consents, regulatory and other approvals.

The company plans to de-merge its airports business—which contributes 60 percent of its revenue—into a separate entity from its energy, highways, urban infrastructure and transportation businesses.

“It’s a win-win game,” Saurabh Chawla, executive director of finance for GMR Group, told BloombergQuint in an interview, adding that the deal would be a gamechanger for the infrastructure sector. Chawla said that the expertise, financial structuring and capital coming from these investors would benefit GMR Infrastructure going forward.

GMR Infrastructure would hold a 54 percent stake in its airport business, while Tata Group, GIC and SSG would hold 20 percent, 15 percent and 10 percent stake, respectively, at the close of the investment.

GMR Airports’ existing private equity investors—Macquarie-SBI Infrastructure Investments Limited, Standard Chartered Private Equity (Mauritius) III Limited and JM Financial Old Lane India Corporate Opportunities Fund Limited—which together owned 5.86 percent stake, will sell it to the new investors.

The management said the move will lead to deleveraging at GMR Infra and pave the way for restructuring of the business by way of demerger. “The proposed investment...will reduce our debt substantially, strengthening our balance sheet,” its Managing Director and Chief Executive Officer Grandhi Kiran Kumar said.

GMR Infrastructure will retain management control over the airports business with the investors having customary rights and board representation at GAL and its key subsidiaries. The company has a net debt of about Rs 20,000 crore, out of which Rs 6,800 crore is due with the airport arm.

The deal would help reduce the company’s consolidated debt of Rs 20,000 crore to Rs 12,000 crore and would bring down the corporate debt of Rs 6,500 crore substantially, GMR Group’s Chief Financial Officer Sushil Modi told BloombergQuint.

The deal values GMR Airports at an equity valuation of Rs 18,000 crore. The market capitalisation of GMR Infrastructure as of Tuesday’s close was Rs 11,740 crore.

GMR said there are earn-outs of up to Rs 4,475 crore linked to achievement of certain agreed milestones and performance metrics over the next five years. The management said that assuming all earn-outs are successfully consummated, the total valuation for the airports on post-money basis will be Rs 22,475 crore.

Last month, GMR had constituted a sub-committee of its board for a possible spin-off of the airport business as it sees a $100-billion investment opportunity in India.

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GMR Airports is developing Goa airport under the build operate transfer model at a cost of Rs 1,880 crore, which has a project life of 40 years and extendable by bids for another 20 years. The company expects to fund the project via equity of Rs 550 crore and debt of Rs 1,330 crore over the next three years. The airport arm has also won the bid to develop Nagpur airport, for which it’s yet to receive the letter of award.

The airports business could be valued at Rs 28 per share, according to an Edelweiss report. Steady traffic growth in airports and asset monetisation will be the key stock driver, said Parvez Qazi, research analyst at the brokerage.

Watch the full interview here