GVK airport firm stake sale faces Cidco scrutiny

Maharashtra government body City and Industrial Development Corporation (Cidco), which owns 26 per cent stake in Navi Mumbai International Airport (NMIAL) along with GVK Group, wants to examine the sale of stake in GVK’S airport holding company (holdco) to ensure there is no breach in the concession agreement and request for proposal conditions.

In a communication to GVK Group on May 18, Cidco said after the stake sale in GVK Airport Holdings to National Investment and Infrastructure Fund, Abu Dhabi Investment Authority, and PSP Investments of Canada, thirdparty investors will acquire 51 per cent of indirect stake in Mumbai International Airport (MIAL) and in the concessionaire (NMIAL), and that GVK Group will not have any direct control over the affairs of MIAL and NMIAL.

Cidco asked GVK Group to submit documents that confirm there is no breach of Clause 5.3 of the concession agreement. Clause 5.3 explicitly says the concessionaire will not undertake or permit any change in ownership — except with the prior written approval of the authority. The clause says any change in equity structure above 25 per cent and acquisition of any control, directly or indirectly of the board of directors of the concessionaire by any person either by itself or by a group of people, shall constitute a change in ownership requiring approval from Cidco in public interest and from national security perspective.

In October, GVK had announced sale of 79.14 per cent in GVK Airport Holdings and upon completion of the transaction, GVK was to hold only 20.9 per cent, while the rest was to be held equally (26.38 per cent each) between the three new investors. The proceeds from the sale was to be used by GVK to retire around ~5,500-crore debt of its holdcos and fund the purchase of additional shares in MIAL from two South African entities — Bidvest and Airports Company South Africa (ACSA). The transaction is not yet closed.

Cidco asked GVK to confirm that the proposed transaction shall be completed only after the financial closure of NMIAL, so that it does not breach Clause 2.3.5 of the RFP. This clause provides any change in control of an associate (whose credentials were taken by MIAL at the time of bid submission) from the date of concession agreement until financial closure will be treated as breach and the authority shall be entitled to terminate the concession agreement. Cidco asked GVK to confirm if it has adequate financial standing and capability to do the project and invest in equity, according to the representation given at the time of bidding.

A GVK Group spokesperson said, according to Clause 5.3 of the concessionaire agreement, when there is a change in ownership beyond a certain level, there are certain obligations the group needs to fulfil, which it is ready to comply with. “Therefore, the question of breach of Clause 5.3 does not arise.”