GVK Power and Infrastructure Ltd will sell 33% stake in Bangalore International Airport Ltd (BIAL) to Fairfax Financial Holdings Ltd for Rs 2,149 crore.
GVK Power and Infrastructure holds 43% in BIAL through its subsidiary GVK Airport Developers.
The deal will help GVK Power and Infrastructure reduce its debt by Rs 2,000 crore and interest costs by Rs 300 crore per year, the Hyderabad-based infrastructure major said in a statement. GVK‘s debt stood at around Rs 26,500 crore in 2014-15.
After the deal GVK will continue to hold 10% stake in the company and also retain management control. “This is Fairfax’s first big investments in infrastructure and they are not coming in as a strategic investor. The running of the airport will continue to remain with GVK,” said one source involved in the deal. The reconstitution of the board of directors to accommodate representation from the new investors has not been decided yet, said this source.
Besides BIAL, GVK Airport Developers owns a majority 50.5% stake in Mumbai International Airport Ltd (MIAL). It also has the right of first refusal for a second airport, which is being planned in Mumbai. The company is also developing a greenfield airport and managing the commercial operations of another one in Indonesia. The airport segment clocked revenues of Rs 2,459 crore in 2014-15 and contributed 80.65% of the group’s total income.
At present, BIAL has the capacity to cater to 20 million passengers annually. The ongoing up-gradation is expected to take the total capacity to 22 million and the proposed new terminal will further push the annual passenger handling capacity to 55 million, said a BIAL spokesperson.
GVK has been exploring several strategic options, including listing its airport vertical or selling stakes in airport holding company, to pare debt. The infrastructure major received multiple offers for BIAL, from which Fairfax Group was selected.
The Bangalore airport deal is expected to be completed by the middle of 2016, and is subject to regulatory clearances.
“We chose Fairfax as a partner in BIAL as we have a long-standing relationship with its chairman (and CEO), Mr Prem Watsa, and we would look forward to partnering with them in developing Kempegowda lnternational Airport through its next stage of expansion,” said GVK Reddy, founder chairman and managing director.
Goldman Sachs and DSP Merrill Lynch are the financial advisors to GVK for the deal, while Cyril Amarchand Mangaldas is the legal adviser.
Canadian investor Prem Watsa’s Fairfax India Holdings Corp holds about 30.65% in IIFL Holdings. Thomas Cook (India) Ltd is also promoted by Fairfax Financial Holdings.