GVK divests 33% stake in Bengaluru airport to Fairfax for $321 million

The Kempegowda International Airport Bengaluru

GVK Power & Infrastructure Limited announced on Monday that it will divest 33 percent stake in Bangalore International Airport Limited (BIAL), which operates the Kempegowda International Airport Bengaluru (KIAB), to investment firm Fairfax for a consideration of Rs 2,149 crore (or approximately $321 million at current exchange rates). GVK Power and Infrastructure was the largest shareholder in BIAL with a 43 percent stake.

The deal will be executed with Fairfax India holdings Corporation and Fairfax Financial Holdings Limited (Fairfax), through their wholly-owned subsidiaries in Mauritius. Fairfax is engaged in property and casualty insurance and reinsurance and investment management. Fairfax, through its subsidiaries, controls 95.1 percent of the voting shares of Fairfax India. Goldman Sachs and DSP Merrill Lynch are the financial advisors to GVK and Cyril Amarchand Mangaldas is the legal advisor to GVK.

BSE-listed GVK Power & Infrastructure has been in talks with various parties to divest its shareholding in its airports business, in a bid to lower its huge debt overhang. In a statement, the company said, “Upon completion of this transaction (with Fairfax), there would be a reduction of debt burden of around Rs 2,000 crore. It would also result in saving of interest cost to the extent of approximately Rs 300 crore per annum.”

The transaction is subject to customary closing conditions and third-party consents, including lender consents, and is expected to be completed by the middle of 2016, added the company. GVK Power & Infrastructure shares were up by over 6 percent at Rs 7.13 apiece, in afternoon trade on Monday.

“This is an important and successful milestone in deleveraging our balance sheet, and all proceeds from this stake sale shall be used to bring down our debt obligations to our lenders. We chose Fairfax as a partner in BIAL as we have a long standing relationship with its chairman, Prem Watsa, and we would look forward to partnering with them in developing KIAB through its next stage of expansion as we develop a new world-class Terminal 2 and a new runway,” said GVK Reddy, founder and CMD of GVK Power and Infrastructure.

KIAB, which began operations in May 2008, is the busiest airport in South India and is the third largest airport in India, having served 15.4 million passengers in 2014-15. The airport’s holding entity BIAL is a public-private partnership between private stakeholders, which collectively own 74 percent stake, the government of India and government of Karnataka.

GVK owns 43 percent stake in the entity, Siemens Projects Ventures (26 percent) and Flughafen Zurich AG (5 percent), while the government holding is 26 percent through Karnataka State Industrial & Infrastructure Development Corporation Limited (13 percent) and Airport Authority of India (13 percent). Post this divestment, GVK Reddy would continue as co-chairman of BIAL and his son GV Sanjay Reddy as managing director of BIAL.

“We will work closely with all stakeholders to manage our stake in BIAL going forward, and will support GV Sanjay Reddy to continue to lead the management team as managing director of BIAL and Dr GVK Reddy will continue as co-chairman of BIAL,” said Prem Watsa, chairman of Fairfax India, and chairman and CEO of Fairfax.

Besides BIAL, GVK operates the Chhatrapati Shivaji International Airport, in Mumbai, and is developing two airports in Indonesia.