GMR Infrastructure Limited today announced that a consortium of the Tata Group, an affiliate of Singapore's sovereign wealth fund GIC and SSG Capital Management will invest Rs 8,000 crore in its airports business, GMR Airports Limited (GAL). The investment will consist of "Rs 1,000 crore equity infusion in GAL and Rs 7,000 crore towards purchase of GAL's equity shares," the company said in a regulatory filing, adding that the proposed investment is subject to definitive documentation, customary regulatory approvals, lender consents and other approvals.
The deal values GAL at Rs 18,000 crore along with "earn-outs of up to Rs 4,475 crore", which are linked to certain agreed milestones and performance metrics over next five years. Hence, assuming all earn-outs are successfully consummated, the total valuation will zoom to Rs 22,475 crore. The GMR Group developed and operates India's busiest and Asia's sixth biggest airport, Indira Gandhi International Airport in New Delhi, as well as the Rajiv Gandhi International Airport at Hyderabad. It also operates the Mactan Cebu International Airport in the Philippines and is reportedly developing greenfield airports in North Goa and Crete, Greece.
At the close of the investment, GMR Infra and its subsidiaries will hold a 54% stake in GAL, while Tata Group, GIC and SSG will own 20%, 15% and 10%, respectively, and Employee Welfare Trust will hold a 2% stake. As per the deal, GMR will retain management control while the new investors will get board representation at GAL and its key subsidiaries along with customary rights.
This development marks the entry of a second corporate giant - the Tatas - into India's airport sector this year. In February the Adani group, in its first major move into the airport business, pipped about seven contenders to emerge the highest bidder for six Airports Authority of India (AAI)-run airports put for privatisation by the government last year. This heralds a new era of competition in a sector so far dominated by two companies, GMR and the GVK group.
It was to break this duopoly that the government allowed companies without any prior experience to bid for the AAI airports. Moreover, the civil aviation ministry's announcement of an investment outlay of around Rs 1 lakh crore in developing the airport infrastructure over the next five years in May 2018 is also fanning interest in the sector.
The salt-to-software conglomerate, in fact, has been trying to get into the airports sector for a while now. In 2014, Tata Realty & Infrastructure had shown interest in developing the Navi Mumbai international airport project along with Spain's Ferrovial, the biggest shareholder in London's Heathrow Airport.
"This proposed investment by marquee investors like Tata, GIC and SSG reaffirms the significant and long-term investment opportunity in the fast growing Airport Infrastructure space with a large pool of capital that can be tapped to grow GMR Airport infrastructure business," GMR Infra's Managing Director and CEO Grandhi Kiran Kumar said in a statement.
For the GMR Infra, which is reportedly saddled with a net debt of close to $3 billion (as of end-December), this move will not only help pare down debt but also strengthen its balance sheet. Following the investment, the company said it proposes to "demerge its Energy, Highways, Urban Infrastructure and Transportation businesses, leading to separation of its airport business".
Reacting to the news, GMR Infra shares jumped as much as 9.25% this morning to Rs 21.25, the highest intraday level since September 3, while the broader S&P BSE Sensex index rose just 0.6%. The stock is currently trading at Rs 20.10 apiece.