Tata Group has entered India's airports sector as it joined Singapore sovereign wealth fund GIC and stressed assets investor SSG Capital Management to invest a total of Rs 8,000 crore ($1.15 billion) in GMR Airports Ltd.
GMR Infrastructure will retain management control of the airports unit with a stake of 53.5%, it said in a statement. An employee welfare trust will hold the remaining 2.1% stake.
GIC will put in about Rs 2,670 crore and SSG Rs 1,780 crore, taking the total private equity component to Rs 4,450 crore ($646 million), according to an investor presentation by GMR.
This would make it the biggest PE deal in india's airport sector in both rupee and dollar terms. India-born Canadian billionaire Prem Watsa's Fairfax has invested Rs 4,258 crore, or $644 million, in three tranches in Bangalore International Airport Ltd, according to VCCEdge, the data research arm of Mosaic Digital, which operates VCCircle.
Tata Group, which operates two airlines in India, will invest the remaining Rs 3,560 crore. The steel-to-software group's entry into the airports business comes close on the heels of another Indian conglomerate, Adani Group, venturing into a sector that until recently had only GMR and GVK Group operating in the segment.
GMR operates the Delhi and Hyderabad airports while GVK runs the Mumbai airports. GVK previously also operated the Bengaluru airport but exited after selling its stake to Fairfax.
Billionaire Gautam Adani-led Adani Enterprises Ltd won bids to operate five government-run airports in the country in February.
For GMR, the latest deal will help it reduce its debt. The company had consolidated net debt of Rs 20,000 as on December 31, 2018, according to the investor presentation.
GMR said the total investment amount consists of an equity infusion of Rs 1,000 crore and Rs 7,000 crore to buy the airports company's shares from the parent company and its subsidiaries. It will use Rs 7,000 crore to repay its own debt and the remaining to repay the airport unit's debt.
The investors have pegged GMR Airports' post-money equity valuation at Rs 18,000 crore. In addition, the deal includes earn-out payments of up to Rs 4,475 crore linked to achievement of certain milestones and performance metrics over the next five years. As a result, the total valuation assuming all earn-outs are paid, will be Rs 22,475 crore on a post-money basis, GMR Infrastructure said.
The transaction will also help GMR Infrastructure provide an exit to its existing private equity investors, which hold a 5.8% stake in GMR Airports.
The PE firms had made a partial exit in October last year following an arbitration award. Macquarie-SBI Infrastructure Fund, Standard Chartered Private Equity, JM Financial India Fund and Old Lane collectively pocketed Rs 3,560 crore while getting a 5.8% stake worth Rs 1,230 crore in GMR Airports, VCCircle reported at the time. That deal had valued GMR Airports at Rs 21,000 crore.
After the PE investors fully exit, GMR Infrastructure's stake in the airports arm will increase to 61.7%.
GMR Infrastructure also said that following the latest investment, it plans to demerge its energy, highways, and urban infrastructure and transportation businesses, leading to separation of its airport business.
The proposed investment is subject to definitive documentation, customary regulatory approvals, lender consents and other approvals.