Fat Cat Investors Chasing Stakes In Cochin Airport; And Why The Model Is Successful
Rediff.com has a fantastic story on my favourite infrastructure project in the country. It’s on Cochin International Airport Limited (CIAL), a unique aviation infrastructure success story in the private-public sector. The company, which is going public this year, is now chased by high profile investors.
The sellers are mainly NRIs and the investors in the race to pick up their shares in CIAL are “the Mukesh Ambani Group, the Anil Ambani Group, the consortium led by GVK Industries Ltd and the Airports Company of South Africa that was awarded the work for the Mumbai airport, and the Hyderabad-based GMR Group that got the Delhi airport modernisation contract”.
“Nearly 10,000 Non-Resident Indians who invested Rs 10 ($0.23) per share for a stake in India’s first greenfield airport 10 years back are a happy lot today,” says the report. Apparently, the new investors are ready to pay as much as Rs 350 ($8) per share to the NRIs. Once the company goes public, these investors can command a huge premium for their holdings.
Why I am impressed with CIAL is that it’s the first aviation venture owned by the public and then made a success of it. It’s profitable. And it can be a great model to follow for any airport projects in the country. Currently, all the other airports and other infrastructural facilities are owned, managed and operated by the government (civil aviation ministry, the Airports Authority of India and the Directorate General of Civil Aviation).
So whose stake are up for sale?
Four NRI directors in CIAL jointly hold 36 per cent stake in the airport. They are N V George, the Sharjah-based promoter of Geo Electricals Trading & Contracting Company Ltd; Yusuf Ali, owner of the Middle East-based business empire EMKE Group, P Mohammed Ali, owner of the Oman-based construction giant Gulfar Engineering & Contracting LLC; and E M Babu, who heads the Dubai-based trading company Majeed Bukatara Trading. Of these four NRI directors in the airport company, N V George has the highest individual shareholding in the company (180 million shares).
Apparently investment bankers and dealmakers from the Ambani groups and other airport private players have been contacting the NRI shareholders. Apparently, many of the minor NRI shareholders are eager to sell their stakes, if the price offered is at such a premium.
The Value Proposition
CIAL posted a profit of Rs 45 crore ($10 million) during 2004-05 on a revenue of Rs 100 crore ($22.7 million).
The airport has now chalked out ambitious plans. According to CIAL managing director V J Kurien, an IAS officer, who is the brain behind the project, projects worth Rs 3,000 crore ($681 million) will be executed in the airport, and its adjoining areas in the next two years. “The biggest advantage of this airport is that we have lots of land for expansion,” he pointed out.
Expansion plans:
- A low-cost airline. The Cochin airport is planning a budget airline. A consultancy agency has already conducted a feasibility study for the project, which has suggested that a budget airline, flying to national and international destinations from CIAL, has immense scope.
- India’s largest aircraft maintenance company. The details of how to make Cochin the hub of aircraft maintenance work are being worked out. The plan, CIAL officials disclosed, is to form an entirely different company to create a large aircraft maintenance hub at the airport. The company may be formed on the lines of the CIAL.
- A few five-star hotels, a shopping mall, a golf course and an airport township around the airport, the land for which is already under CIAL possession.
Bottomline
CIAL is a great model to follow. I would like to see similar airports coming up in areas like Greater Noida (near Delhi).
Updated: The Hindu has a report that the Airports Authority of India has drawn up a plan to develop 35 non-metro airports by modernising the infrastructure and augmenting non-aeronautical revenue. Madurai and Thiruvananthapuram are among the 10 airports identified for the first phase.
In the second phase, Agatti, Aurangabad, Khajuraho, Rajkot, Vadodara, Bhopal, Indore, Nagpur, Visakhapatnam, Tiruchi, Bhubaneshwar, Coimbatore, Patna, Port Blair and Varanasai airports will be developed. Agartala, Dehradun, Imphal, Ranchi, Raipur, Chandigarh, Pune, Dimapur, Agra and Jammu airports will be taken up in the third phase.
The estimated expenditure for the development of terminal buildings and airside works is Rs.5, 500 crore. The AAI has appointed a credit-rating agency. A financial advisor-cum-lead-arranger will help raise the funds. The AAI has forecast a 15 per cent increase in domestic air passenger traffic during 2005-06 and 10 per cent in international traffic.
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