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Adanis Group in race to buy 23.5% in Mumbai Airport

MUMBAI | NEW DELHI: The

Adani Group

has made a formal offer to buy out the 23.5% held by two South African firms in

Mumbai airport

, setting the stage for a battle with the GVK Group which has also shown interest in increasing its stake.

The Adani Group has sought to buy the stakes of Airports Company South Africa (ACSA) and Bidvest, the joint venture partners of GVK in the Mumbai International Airport Ltd (MIAL), at a valuation of Rs 9,500 crore, people aware of the situation said.

With an offer on the table, the South Africans — believed to be keen on exiting the venture — have invoked the right of first refusal (RoFR) clause, forcing the cash-strapped Hyderabad-headquartered infrastructure conglomerate to scurry for funds to ward off what is now being perceived as a smart corporate move by the Adanis to take a large chunk of the country’s second-busiest airport. As per the agreement, the invocation can happen only once. GVK has time till February-end to comply or face a protracted corporate or legal battle.

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VALUATION LOWER THAN EXPECTATION

Bidvest’s holdings have been valued at Rs 1,248.75 crore, or Rs 77 per share, according to documents seen by ET. At this rate, MIAL is valued at about Rs 9,500 crore, lower than the promoter group’s expectation. Bidvest has written to GVK and ACSA, with a copy marked to AAI, asking the two partners to match the offer within a month, according to the letter dated January 26, 2019. ET was first to report the developments on February 1.

Adani Group officials declined to comment. An email sent to GVK group and MIAL did not elicit any response.

People close to GVK said that it has received stake sale proposal from both the partners in the consortium and the RoFR clause gives GVK group a chance to match the offer.

“The GVK group will match the offer and buy the 23.5% stake in the company. We will not let the stake in the company go to anyone else,” said one of them, who did not want to be identified.

Bidvest launched an official stake sale process last year by roping in investment bank Rothschild. At the same time, GVK also launched efforts to raise funds at GVK Power and Infrastructure’s airport holding company. Citi has been working with GVK to find a partner.

Holding company GVK Airport Developers has a near majority stake in the consortium that’s running Mumbai airport since 2006 and also building a second one in Navi Mumbai for about Rs 16,000 crore. The holding company is estimated to have Rs 5,000-5,500 crore debt.

MIAL, the underlying operating company, is a JV between GVK, Airports Authority of India (AAI), Bidvest and ACSA. GVK Airport Developers owns 50.5% of MIAL, Bidvest holds 13.5%, ACSA owns 10% and the rest is with AAI.

However, almost the entire promoter holding is pledged with banks including ICICI Bank, HDFC Bank and Yes Bank, said banking industry officials. GVK promoters took the loans to finance their Australia project and Bengaluru airport venture.

MIAL also owns 74% stake of the planned Navi Mumbai International Airport Ltd while the rest is held by local nodal body City and Industrial Development Corp (Cidco).

VALUATION CONCERNS

ET reported earlier this week that three investors Abu Dhabi Investment Authority, PSP Investments of Canada and Spanish conglomerate Ferrovial, the operators of Heathrow, Aberdeen, Southampton and Glasgow airports, have bid to buy a stake in MIAL. However, the value discovered is much less than what the promoters were expecting. Most bids are at a Rs 12,000-13,000 crore valuation range, said people directly involved in the negotiations, while the promoters have been seeking an enterprise valuation of ?20,000 crore.

At Rs 13,000 crore valuation, GVK’s 51% will only help raise Rs 6,500 crore, and may not be enough to block Adani Group from stepping in unless a white knight comes in and bail it out. Some of the lenders too have been trying to reduce their exposure to the highly leveraged group that was earlier forced to sell the Bengaluru airport stake to Prem Watsa.

“For the GVK promoters, raising emergency funds may be the only option and that is exceedingly tough considering their leverage. The tepid response of the three investors for the holding company has made matters worse.

At this valuation, they may end up losing control. The Reddys are already fully pledged and Adanis saw a great opportunity as they are upping their game in infrastructure,” said an official directly involved in the process.

Adani Group has presence in ports and real estate businesses and is expanding into roads, waterways and airports. Adani Transmission has acquired Reliance Infrastructure’s Mumbai power distribution business for Rs 18,000 crore. The group has also bid for six airport projects — Ahmedabad, Guwahati, Mangalore, Jaipur, Thiruvananthapuram, Lucknow — and is confident of winning big. Bids are to open on Monday.

Another group company, Adani Infra, is one of the two shortlisted firms for the Rs 22,000-crore Dharavi Redevelopment Project. Dubai-based Seclink Group is the other candidate. Large swathes of the Asia’s largest slum adjoin the airport land and displacing the people living there to exploit the prime real estate of the airport project has always been a challenge. If Adani Group gets both, it will open up a massive value proposition for the conglomerate.

MIAL has the right to develop 5% of the total land area of Mumbai airport for real estate. However, the airport operator has monetised only a small portion of the land so far, pending approvals.

BANK ROLE

Corporate circles are keenly watching the developments, especially the next move from the banks. Last year, the lenders to GVK promoters had approached several strategic players if they would be keen to buy out the loan but most relented as it would be perceived a hostile move. Adanis may not like to be a junior partner and would seek to have a greater sway in the airport company.

The 23.5% stake also does not come with any rights or board seat, thereby making the negotiations even more interesting. Some expect GVK to move court to block any potential transaction and a protracted legal battle to follow.

“Have you ever seen them (the Adanis) agree on a minority stake? I would be surprised if negotiations are not underway with the lenders too for a bigger chunk. It’s a conscious strategic move,” said a CEO of an infrastructure company on condition of anonymity. “In this flux, financial sponsors or pension funds may find it difficult to come in and partner GVK.”

Mumbai handled almost 49 million passengers in the year ended March 2018. It also holds the record for being the world’s busiest single runway airport. The much-delayed Navi Mumbai airport is seen as a critical alternative to the existing congested facility.

The government has announced a deadline of 2020-21for the first commercial flight to take off from the new airport. Given the rapid increase in aviation demand, the builders of the airport have enhanced the size of the project, doubling its initial yearly passenger handling capacity to 20 million, and increasing the final capacity by 50% to 90 million. The airport project is yet to get some environmental clearances needed to begin full-fledged construction.

MIAL has to share 38.70% revenue with AAI for the Mumbai airport and 12% with Cidco for the Navi Mumbai airport project.


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