Fairfax buys 33% in Bengaluru airport from GVK for 2,149 crore

BENGALURU: Airport operator GVK Power & Infrastructure, which owns the majority stake in the Bangalore International Airport (BIAL), is selling most of its holding to Canadian investor Prem Watsa's Fairfax Group in a bid to reduce its debt.
GVK will pare its 43% stake in the company to 10%, divesting 33% for Rs 2,149 crore ($321 million) to Fairfax India Holdings Corp and Fairfax Financial Holdings.This values the Bangalore airport at Rs 6,512 crore, or close to $1 billion.
The deal, the largest M&A in the country's airport infrastructure and the broader aviation sector, will help GVK reduce its debt by about Rs 2,000 crore and save interest cost of about Rs 300 crore annually, the company said in a filing.
"This is an important and successful milestone of deleveraging our balance sheet and all the proceeds from the stake sale shall be used to bring down our debt obligation to our lenders. We chose Fairfax as our partner in BIAL as we have a long-standing relationship with its chairman Mr Prem Watsa," chairman and managing director G V K Reddy said. He did not disclose what the long-standing relationship was. But both Reddy and Watsa have strong roots in Hyderabad.

Shares of GVK, which also operates the Mumbai airport, rose about 6.4% to close at Rs 7 on Monday on the BSE while the broader sensex fell about 1.5%. TOI had reported in December that GVK Airport Developers, a wholly owned subsidiary of the listed company, had shortlisted five bidders to sell up to 49% for raising Rs 4,000 crore. The report had also mentioned that the company was looking at a strategic sale, and not an IPO.
GVK Airports could also pursue a similar divestment move in Mumbai International Airport (MIAL) to pare down a total debt of Rs 23,000 crore sitting on its parent GVK Power's books. The standalone debt of GVK Airports is Rs 3,600 crore.
This is Watsa's first big deal in the Indian infrastructure space after buying a 74% stake in commodities storage and services firm National Collateral Management Service last year. The airport deal, expected to be completed by the middle of the year, has been structured as a partnership deal where GVK retains executive management titles. G V Sanjay Reddy will continue to be the managing director and G V K Reddy will be co-chairman of BIAL, Watsa said in a statement.
Watsa, however, will have a significant say in the affairs and Fairfax will pursue opportunities to raise its holding in BIAL but will have no right of first refusal on the remaining 10% stake that GVK still owns.
Post the deal, which was advised by Bank of America Merrill Lynch and Goldman Sachs, Fairfax will become the largest shareholder in the country's third busiest airport, with the rest held by Siemens (26%), Karnataka State Industrial Infrastructure Development (13%), Airports Authority of India (13%), and Zurich AG (5%).
GVK became the largest shareholder of BIAL in 2011, when it increased its holding to 43% from 29% in 2011, by buying 53.8 million equity shares from Siemens for Rs 614 crore. BIAL was then valued at Rs 4,378 crore, which means the valuation has risen by about 50% in a little under five years. BIAL had revenue of Rs 933 crore in 2014-15, up 38% from the year before, and net profit of Rs 75 crore, up 12% from the year before.
The Mumbai and Bangalore airports can handle 60 million passengers annually, making GVK one of the largest private sector operators in the country. The passenger traffic at the airports has risen 16% and 21%, respectively, in recent quarters.