Business Today

Capital crisis

A huge funding gap threatens to stall India’s biggest airport project. What are the funding options before DIAL that has a March 2010 deadline to meet?

K. R. Balabubramanyam        Print Edition: February 22, 2009

Both time and money seems to be running out for India’s biggest airport project—the modernisation of the Delhi international airport. The phase I of the project, which includes the all-important new terminal, must be completed by March 2010, the official deadline that it cannot miss in view of the upcoming Commonwealth Games in Delhi. But the GMR Group-led consortium, which has promoted the Delhi International Airport Limited (DIAL), has barely enough funds to keep the civil works going beyond a few weeks. The project is stuck with a gap of about Rs 2,750 crore, and ways to plug the hole will have to be found quickly. How did things come to such a pass? And what are the funding options available to all the stakeholders, including the Government of India?

Work in progress: DIAL’s new terminal will handle 34 million passengers, whereas the four existing terminals together handle 12 million
Work in progress: DIAL’s new terminal will handle 34 million passengers, whereas the four existing terminals together handle 12 million
This huge shortfall is due to the failure of the promoters to meet their funding commitments. Out of the Rs 8,900 crore estimated cost of the project, the five promoters—GMR (50.1 per cent stake), Fraport AG of Germany (10 per cent), Malaysia Airport Holdings (10 per cent), IDFC (3.9 per cent) and the Airports Authority of India (26 per cent)—have an obligation of infusing Rs 3,956 crore in equity, while banks have committed to lend Rs 4,945 crore. The debt-to-equity ratio worked out is in the proportion of 1.25:1 or 56:44. The promoters have so far invested Rs 1,200 crore, while the banks have released Rs 3,500 crore.

There are four options before DIAL and the Government of India to make up for the shortfall—fresh infusion of equity, refundable deposits from hotel projects, market borrowings and airport development fee (ADF). But given the difficult economic scenario, exercising any one option may not plug the entire funding gap. However, using a combination of these might save the day for the stakeholders. Here’s how:

Equity
There is an outstanding equity of Rs 2,756 crore from the developers’ side, and it’s time they progressively invested this. However, none of the five promoters seems keen to pump in fresh equity fearing the prospects of a prolonged slump in property markets and decline in passenger volumes. AAI is said to be least interested in doing so, considering that it has other airports, especially large ones in Chennai and Calcutta, to modernise and manage.

Refundable deposits
After a delay of about a year, the Government of India has now allowed DIAL to raise refundable deposits from hotel projects at the 45-acre plot, which has been earmarked for commercial exploitation in phase I. The company can now collect deposits equivalent to three times the average annual lease rentals. The developers had earlier proposed deposits at the rate of six times the average annual lease rentals, but the demand was met with resistance. When the idea was mooted more than a year ago, the property markets were still holding firm, and the developers had planned to raise around Rs 3,000 crore. But in the changed circumstances at present, their ability to raise deposits from hotel projects is only limited. The present gap in funds will come down to the extent of deposits collected. If the DIAL can mop up, say, around Rs 750 crore, then the gap will close to about Rs 2,000 crore.

Loans
The developers can expect only the balance of about Rs 1,450 crore from the banks. Bankers say they are already overexposed to the project—loans released are far higher than prescribed under the debt-equity ratio. They can consider further release of funds only if promoters bring in fresh equity. Which means the project may receive fresh funding from banks in line with the deposits raised. DIAL, official sources say, has no plans to tap capital markets for equity.

Airport development fee
DIAL has proposed to the government an airport development fee (ADF), chargeable to outgoing passengers at the rate of Rs 300 per domestic passenger and Rs 1,000 per international passenger. This way, DIAL may be able to mop up about Rs 640 crore even if the traffic remains at last year’s levels. But suggestions of this new levy have already drawn flak. The Ministry of Civil Aviation is working on the ADF proposals, but is yet to take a call. “We are examining the proposals from DIAL, but have not decided anything yet. We will soon take a decision,’’ Civil Aviation Secretary M. Madhavan Nambiar told BT.

This is not like any other airport project, and there is a lot of prestige attached to it. The Commonwealth Games, due in October 2010, cannot wait till the airport shapes up. But a DIAL spokesperson sounded confident. “We built the runway in 15 months and put it to commercial use ahead of schedule. We are confident of completing the new terminal for the Commonwealth Games in 2010,’’ he said. Brave words indeed. Now it’s time to act on it.

Bangalore applies brakes
Fund constraint is forcing BIAL to rejig its expansion plans.

Tight money supply coupled with prospects of a flat or even negative growth in passenger volumes have hit the Bangalore international airport, too. As a result, the Siemens-led consortium, which runs the Bangalore international airport, is rethinking its plans on expansion.
Low passenger volumes and revenues are staring the Bangalore International Airport Limited (BIAL) in its face. At the time of its opening on May 24, 2008, it was estimated that the airport would reach its peak capacity of 12 million passengers in its first year itself. But the airport now expects to end the year with a lower volume of 8.2 million passengers. As a result, BIAL has had a shortfall in revenues. Albert Brunner, the outgoing CEO of BIAL, told BT that the company has run up accumulated losses of Rs 160 crore in the six months of its operations. Both Brunner, and the new CEO, Marcel Hungerbuehler, are hoping that the Ministry of Civil Aviation will soon concede its demand for a user development fee (UDF) of Rs 675 as against Rs 260 permitted on an ad hoc basis. The BIAL, Brunner says, will take a final call on the expansion, which originally included an intermediate express terminal, a terminal building and a second runway, only after a clear picture emerges on revenues.

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