GVK agrees to cede control of airport business to Adani Group

MUMBAI: In a move that will catapult the Adani Group to being India's biggest airport operator by number of projects, GVK Power and Infrastructure has agreed to cede control of the Mumbai airport and the Navi Mumbai project to the conglomerate, according to separate statements from both entities.
The founder of GVK, which had been aggressively defending its airport business for a year getting into complicated legal wrangles to retain control, said it buckled under pressure from lenders and as the Covid19 pandemic battered business.

Adani Group, itself highly leveraged, will acquire all the debt on the books of GVK group’s subsidiary GVK Airport Developers, the airport holding company, and subsequently convert that into equity totalling 50.5% in Mumbai International Airport Ltd (MIAL), the consortium that runs the Mumbai airport and has a 74% stake in the Rs 16,000 crore second airport project planned in the city.

Adani already has six privatised airports—Ahmedabad, Lucknow, Mangaluru, Thiruvanthapuram, Jaipur and Guwahati in its kitty. It has signed concession agreements for the first three and has received cabinet approval for the other three. Together all seven airports including Mumbai, handled close to 75 million passengers in FY20. In terms of passenger traffic, Adani would still be behind GMR Infra whose Delhi and Hyderabad airports together handled more than 85 million passengers in FY20.

There is no direct equity transaction between GVK and Adani, which means the Adani Group is ascribing almost nil value GVK's equity. This also terminates an agreement that GVK signed last year with a trio of investors--National Investment and Infrastructure Fund (NIIF), Gulf sovereign fund Abu Dhabi Investment Authority and Canada’s PSP Investments—to sell 79% stake in its airports business for Rs 7,614 crore.

Adani will also buy out Bid Services Division (Mauritius) Ltd or Bidvest which owns 13.5% in MIAL and Airports Company South Africa (ACSA) which owns 10%. Adani Group will eventually own 74% each in MIAL and the Navi Mumbai airport project.

Neither company nor their spokespersons specified the debt being acquired. According to figures compiled by business intelligence company Veratech from the ministry of corporate affairs, GVK Airport Developers had outstanding debt of Rs 3,739 crore as of end FY19 while MIAL had Rs 8,109 crore.

The lenders include a consortium including Goldman Sachs as well as HDFC and SBI among others.

The agreement includes releasing “GVK of various obligations, securities and corporate guarantees given in respect of debt to be acquired by Adani” said a statement from GVK.

To be sure, the Adani Group had total debt of Rs 1.3 lakh crore on its books, as reported by ET on May 7.

The statements from both entities also said Adani will infuse funds into MIAL and help to achieve financial closure for Navi Mumbai airport. A clause in the concession agreement of the Navi Mumbai airport says it would be a breach of the contract if the concessionaire MIAL cedes control before the project achieves financial closure. ET reported it on August 24.

"The aviation industry has been severely impacted by COVID-19, setting it back by many years and has impacted the financials of Mumbai International Airport Limited. It was therefore important, that we bring in a financially strong investor in the shortest possible time to improve the financial position of MIAL, as well as to help achieve Financial Closure of the Navi Mumbai International Airport project, which is a project of national importance,” said chairman GVK Reddy.

“It is under these circumstances that we agreed to cooperate with Adani so as to achieve these twin objectives. Further, when the transaction is consummated, which is subject to customary approvals, we would be reducing a significant portion of liabilities to our lenders, which is of utmost importance to the group,” he added.

GVK has notified the Abu Dhabi Investment Authority, National Investment and Infrastructure Fund and PSP that the transaction documents stand terminated, as it is no longer effective and implementable.

“The reason for this decision was a) the terms of the transaction envisaged in the Transaction Documents were not implementable and b) the alternative proposals discussed would not provide a resolution to the lenders of ADL by the end of August, which was a requirement of our lenders,” said GVK in its statement.

ET on August 29 reported that the investor trio, sent a legal notice to GVK and its lenders stating that the sale of Mumbai International Airport (MIAL) to the Adani Group will be a “breach” of GVK’s contract with them.

Before that, ADIA and PSP wrote to the government seeking a fair and transparent solution to the takeover drama.

The deal was preceded and is simultaneous to a complex year long spate of legal wrangles.

Between Jan and March 2019, Bidvest was offered and entered into an agreement with Adani Group to sell its entire stake in the airport for Rs 1,248 crore or at Rs 77 a share. Adani also made an offer to ACSA.

GVK, however, exercised its right of first refusal and said it would acquire both partners stakes for a total of Rs 2,156 crore, according to figures from the FY19 annual report.

This led to legal battles with all parties approaching high courts and the Supreme Court. In November, the Bombay High Court refused interim relief to Adani Group which had sought an injunction against the sale of Bidvest’s stake to GVK or any other party. An arbitration tribunal has restrained Bidvest from transferring its stake in GVK Airport Holdings.

In July, Bidvest again moved the Delhi High Court against the deal between GVK and ADIA-NIIF-PSP saying it would change the shareholding in MIAL which effectively violates the ROFR clause in the original shareholders agreement signed in 2006.

In May, GVK wrote to CIDCO, the nodal body for the Navi Mumbai airport project, and indicated it would be unable to start work on the project in the next few months due to business impact from the pandemic.

Subsequently, Crisil downgraded MIAL’s proposed non-convertible debentures of Rs 2,000 crore and some other loans.

Also, the Central Bureau of Investigation has filed an FIR based on an anonymous letter accusing GVK’s founders of siphoning off Rs 705 crore from the airport’s kitty. The Enforcement Directorate has filed a separate case.