After debt reduction, GVK banking on MIAL

In the last of a four-part series, Business Standard look sat how the conglomerate grappled with debt while facing insolvency

The GVK group, which had emerged as one of India's leading infrastructure players, had ~36,000 crore debt on its books on March 31, 2017, primarily because of several large projects under its belt. Over 62 per cent of this debt, amounting to ~22,395 crore, is linked to projects.

GVK’s infrastructure portfolio included the Mumbai and Bengaluru airports, three highway projects, 5,900 Mw of power plants, and the $1.26-billion acquisition of Hancock coal and infrastructure projects in Australia. The majority of this debt was on the books of the public arm GVK Power and Infrastructure.

GVK had over-leveraged itself for these investments, making it one of the 10 most indebted companies in the country. In March this year, Syndicate Bank even started the process of selling over 2,500 acres of land in the GVK Perambalur special economic zone (SEZ) in Tamil Nadu. The banks, however, did not receive any bids.

GVK has categorised its debts into three buckets — holding company debt, project debt and the debt incurred to acquire Hancock, the Australian coal mine that is in a limbo. GVK has failed to pay A$650 million as part of the acquisition.

Of ~22,395 crore debt linked to projects, over ~8,300 crore is linked to Mumbai International Airport Ltd (MIAL), which operates one of the country's busiest airports.

The holding company had debts of ~3,449 crore and because there are no cash flows of these assets, it had to sell other assets. The biggest such exercise was exiting Bangalore International Airport Ltd (BIAL), operator of the Bengaluru airport.

In March 2017, GVK closed a deal with Prem Watsa's Fairfax to sell a 33 per cent stake in BIAL for $330 million. The deal was signed in March 2016. GVK retained a 10 per cent stake and management of BIAL. Later in June, it announced it was selling its residual 10 per cent stake for ~1,290 crore.

Through this deal, GVK’s debt exposure to the airport business has been reduced by ~2,000 crore, say sources who do not wish to be named.

Part of the proceeds from the Bengaluru airport stake sale was used for paying vendors and retire loans GVK took for the Hancock acquisition.

GVK says it will service the remaining project debt through cash flow from businesses. It has already commissioned the Goindwal Sahib thermal project in Punjab, which had undergone a restructuring initiated by the Reserve Bank of India.

In 2014, the RBI had launched flexible structuring of long-term project loans to infrastructure and core industries after banks raised concerns that they were unable to provide long-tenure financing owing to asset-liability mismatch issues. To overcome challenges, banks were allowed to fix a longer amortisation period with project refinancing every five years. GVK also structured its loan for the Alaknanda hydropower project under this scheme.

"Operations of these two power plants on a continuous basis will help in servicing the project debt and in gradually reducing the debt burden of the group," said sources in GVK.

For MIAL, the group refinanced its ~8,300 crore debt, bringing down the rate of interest to 9.15 per cent from 11 per cent. It also has received a letter of intent for the Navi Mumbai airport, in which it is expected to invest ~1,500 crore in a phased manner. In fact, that is the only project that GVK plans to execute at the moment.

The company may also look at divesting stakes in one of its road assets and either restructuring or divesting a gas-based power asset. It is also looking to recover the dues of the de-allocated coal mine from the government.

GVK’s strategy of reduction of its holding company debt by divesting its stake in BIAL, commissioning all projects in hand, stabilising and improving the revenue of all projects, and divesting gas-based power projects and road assets will eventually improve its ability to service the debt, says an analyst who does not want to be named. "Since most of our projects have been implemented, we will see growth in group turnover," said a company official.