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News reports suggest that Singapore's Changi Airports is likely to buy a
26% stake in GVK Airports, the airport holding company of GVK Power &
Infrastructure (GVK). Reports indicate a deal size of INR20bn‐22bn for a
26% stake in GVK Airports. However, the GVK management as well as
Changi airports have not confirmed the same.
Deal specifics: GVK Airports is the holding company for GVK Group airports business.
GVK currently holds a 50.5% stake in Mumbai Airport (MIAL) and a 43% stake in
Bengaluru Airport (BIAL). News articles suggest that the money raised will be used to
repay the debt taken by GVK for buying a 17% stake in BIAL from L&T for INR6.86bn, a
12% stake from Zurich Airport in BIAL for INR4.84bn, a 14% stake in BIAL from Siemens
for INR6.14bn, and a 13.5% stake in MIAL from Bidvest (for which it needs to pay
USD287mn). It would also help GVK meet its equity commitment for the MIAL
development as well as for further capex in BIAL.
Impact on valuations: We had valued the airport portfolio of GVK at INR36.6bn
whereas the current deal values the same at ~ INR77bn (assuming a 26% stake for
INR20bn), implying a sizeable premium to our valuation. Adjusting for the stake sale to
Changi and reducing the debt required to be paid, our SOTP for GVK will rise from the
current value of INR16 to INR22.
More than the upside to valuations, we believe the deal will be important from a
funding point of view. GVK had been witnessing significant pressures on the balance
sheet due to the back ended earnings profile of all assets and the ‘leverage funded’
acquisition of the incremental 13.5% stake acquisition in MIAL and 14% stake in BIAL.
GVK Airports also had a debt of INR7.5bn (as at FY11 end) related to the earlier
acquisition of the 29% stake in BIAL. The increasing cost and time overruns in MIAL
expansion project along with the uncertainty surrounding the airport regulatory
framework had created concerns amongst investors regarding the airport portfolio. The
deal is likely to help GVK reduce the stress on its balance sheet and provide comfort to
investors.
However, it looks like the funds raised can be used only for the airports business and
not at the parent company level. The parent company still has significant fund
requirement for development of three road projects and the acquisition as well as
subsequent capex at Hancock. We believe this will continue to remain as an overhang
on the stock.
We await the confirmation from the management including details like the exact
structure of the deal before making any changes to our SOTP value.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
News reports suggest that Singapore's Changi Airports is likely to buy a
26% stake in GVK Airports, the airport holding company of GVK Power &
Infrastructure (GVK). Reports indicate a deal size of INR20bn‐22bn for a
26% stake in GVK Airports. However, the GVK management as well as
Changi airports have not confirmed the same.
Deal specifics: GVK Airports is the holding company for GVK Group airports business.
GVK currently holds a 50.5% stake in Mumbai Airport (MIAL) and a 43% stake in
Bengaluru Airport (BIAL). News articles suggest that the money raised will be used to
repay the debt taken by GVK for buying a 17% stake in BIAL from L&T for INR6.86bn, a
12% stake from Zurich Airport in BIAL for INR4.84bn, a 14% stake in BIAL from Siemens
for INR6.14bn, and a 13.5% stake in MIAL from Bidvest (for which it needs to pay
USD287mn). It would also help GVK meet its equity commitment for the MIAL
development as well as for further capex in BIAL.
Impact on valuations: We had valued the airport portfolio of GVK at INR36.6bn
whereas the current deal values the same at ~ INR77bn (assuming a 26% stake for
INR20bn), implying a sizeable premium to our valuation. Adjusting for the stake sale to
Changi and reducing the debt required to be paid, our SOTP for GVK will rise from the
current value of INR16 to INR22.
More than the upside to valuations, we believe the deal will be important from a
funding point of view. GVK had been witnessing significant pressures on the balance
sheet due to the back ended earnings profile of all assets and the ‘leverage funded’
acquisition of the incremental 13.5% stake acquisition in MIAL and 14% stake in BIAL.
GVK Airports also had a debt of INR7.5bn (as at FY11 end) related to the earlier
acquisition of the 29% stake in BIAL. The increasing cost and time overruns in MIAL
expansion project along with the uncertainty surrounding the airport regulatory
framework had created concerns amongst investors regarding the airport portfolio. The
deal is likely to help GVK reduce the stress on its balance sheet and provide comfort to
investors.
However, it looks like the funds raised can be used only for the airports business and
not at the parent company level. The parent company still has significant fund
requirement for development of three road projects and the acquisition as well as
subsequent capex at Hancock. We believe this will continue to remain as an overhang
on the stock.
We await the confirmation from the management including details like the exact
structure of the deal before making any changes to our SOTP value.
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