Tata consortium to tweak investment in GMR airports, reduce stake by 5%

The Tata group will restructure its proposed investment in GMR Airports to comply with a policy clause which prevents airline groups from exceeding a 10 per cent stake in Delhi International Airport (DIAL). 

Tatas, which hold a majority in two airlines Vistara and Air Asia India, have now decided to reduce their holding in GMR Airports to 15 per cent from 20 per cent planned earlier to steer clear of any regulatory violation.   

Singapore-based sovereign wealth fund GIC, which is part of the consortium investing Rs 8,000 crore in GMR Airports, will pick up the stake being shed by the Tata Group. The other two entities in the consortium are Hong Kong-based SSG Capital Management and Valkyrie Investments — an affiliate of GIC.

“The partners making the investment in GMR Airports have agreed to a revised holding among them to bring the percentage stake of the Tata group in line with the contract signed by GMR with the AAI (Airports Authority of India) during the privatisation process of DIAL,” said a person aware of the development.

The previous deal structure would have given the Tatas a 20 per cent in GMR Airports (GAL) and in turn 12.8 per cent holding in DIAL. GMR holds 64 per cent stake in DIAL, while the AAI and German company Fraport own 26 and 10 per cent, each.

Sources aware of the development said the restructuring was necessitated as Solicitor General of India Tushar Mehta took an adverse view of the investment model. The AAI had sought the SG’s opinion on whether the legality of the transaction violated the DIAL contract. 

“Aggregate shareholding of Scheduled Airlines and their respective Group Entities should not exceed ten (10) per cent of the total issued and paid up capital of DIAL,” states the Operation, Management and Development Agreement of April, 2006 between the AAI and GMR.

The Tata group’s effective shareholding will now be 15 per cent in GMR Airports, translating into a shareholding of approximately 10 per cent in DIAL, the person quoted above said. “The enabling provision is already provided in the current shareholders’ agreement and there won’t be any gap in the inflow of capital investment in the company,” he pointed out.

The Tata group could not be reached immediately for a comment. 

The deal announced in March 2019 has faced delays due to various regulatory approvals. As a result, GMR had to raise additional bonds to meet the debt obligations. The deal is crucial for the GMR group to deleverage its balance sheet. The company’s net consolidated debt is as high as Rs 20,000 crore. In Q1 FY20, the company’s interest outflow of Rs 812 crore was higher than its earnings before interest, taxes, depreciation and amortization of Rs 599 crore.

With the airports business faring better than the others—roads and power—over the years, the group’s decision to demerge and eventually monetise it, was the only recourse to lower the mounting debt.

“The investment process is on track and is expected to close in a few weeks,” the source said. AAI had sought SG’s view despite the Competition Commission of India (CCI) giving an all clear to the deal earlier this month. The ministry of civil aviation carried out a stakeholders’ consultation over the process which included seeking views from other airlines.

“Some concerns have been raised by other airlines that the Tata Group holding such a large stake in GMR can distort the level playing field and give unfair advantage to Vistara and Air Asia India,” according to a government official. Delhi Airport is the base of two other airlines--IndiGo and SpiceJet. “There cannot be any conflict over ownership respect.” Regulatory authorities across the globe are mostly wary of airlines taking too large a share, for fear of them distorting competitiveness in airport access--primarily linked to allocation of slots. For instance, Australian rules prescribe a five per cent limit on airport-operator companies for airline ownership.

But CCI took a view that slot allocation at congested airports like Delhi is done by a coordination committee which has representation from the government and all airlines.

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