Indian conglomerate GVK sells a 33% stake to reduce debt

The investment from Fairfax will reduce INR 2000 crore of GVK’s debt burden and save the interest cost to around INR 300 crore per annum.

Indian conglomerate GVK Power & Infrastructure will sell 33 percent of its total stake in Bangalore International Airport Limited (BIAL) to Fairfax Financial Holdings to reduce its debt.

The Indian infrastructure conglomerate had an INR 26500 crore ($3.86 billion) net group debt in the fiscal year of 2015, according to a local news report. A filing on Bombay Stock Exchange (BSE) states that the INR 2149 crore($321 million) investment from Fairfax will reduce INR 2000 crore of GVK's debt burden and save the interest cost to around INR 300 crore per annum. The transaction is expected to close mid-year and it will dilute GVK's stake in BIAL from 43 percent to 10 percent.

After the transaction, G V Sanjay Reddy will remain as the managing director of BIAL and Dr GVK Reddy will continue as the co chairman of BIAL.

A local news report says that the GVK's group debt level had increased by 10 per cent in fiscal year 2015 and 5 times over the past four years. Therefore, GVK Power has been exploring avenues, including a possible IPO of its airport business to relieve its debt burden.

GVK Airport Developers, a wholly owned subsidiary of GVK Power & Infrastructure, had initiated a financing process last year to reduce its debt obligations to its lenders.

“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,” said Dr. GVK Reddy, founder chairman and managing director of GVK.

“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 Kempegowda International Airport through its next stage of expansion as we develop a new world-class Terminal 2 and a new runway,” he added.

“We will work closely with all stakeholders to manage our stake in BIAL going forward,” commented Prem Watsa, chairman and chief executive of Fairfax.

BIAL owns and operates the Kempegowda International Airport Bengaluru (KIAB). The profit KIAB contributed to GVK increased from INR 32 crore in 2015 to INR 114 crore in 2016 due to an improvement in traffic and an increase in user development fees.

GVK is an Indian conglomerate that deals in energy, resources, airports, transportation, hospitality and life sciences sectors. GVK set up India's first independent power plant and has over 2600 MW projects under generation and development. It is also one of India's largest private sector airport operators that handles Chhatrapati Shivaji International Airport, Mumbai and the greenfield Kempegowda International Airport, Bengaluru.

Fairfax India Holdings Corporation is an investment holding company investing in public and private equity securities and debt instruments in India.