SURVIVING DEBT
The GVK Group is taking a host of debt reduction measures even as it tries to look at growth options in the airports business.
“Debt reduction is top priority for us and we are working towards reducing it substantially… at the same time, we are keenly tracking the potential growth drivers.” G.V. Krishna Reddy Founder and Chairman, GVK Group
Inthe middle of this year, July 7 to be precise, GVK achieved financial closure for the Navi Mumbai airport project. This is the first new venture it is taking up after a gap of three years, the last being its ` 5,000 crore Goindwal Sahib thermal power project, which went onstream in April 2016. The apparent reason: The company wanted to focus on debt reduction. “Debt reduction is top priority for us and we are working towards reducing it substantially in the next four to five years,” G.V. Krishna Reddy, the Founder and Chairman of the GVK group, had said early in the year. When BT met him a few months ago and asked him the way ahead, he said, “Every day, I spend at least one hour reviewing this (steps to cut down debt).” Senior company executives see no change in this focus even today.
These efforts are driven by an understanding that overleveraging limits options for growth as interest takes away a large chunk of what you earn. There is also the risk of cash flows not being enough to pay interest, increasing the risk of default and now, under the new Insolvency and Bankruptcy Code, bankruptcy as well.
While the debt reduction strategy is clearly working — the total group debt, ` 30,000 crore two years ago, is now close to ` 24,000 crore — so is the plan to sell some good assets and get a good number of stalled projects, especially in the power sector, going. But it’s not that simple. Why Add Debt?
The Navi Mumbai airport project, instead of reducing the debt pile, will add another ` 8,500 crore to it. So, how does this gel with the focus on reducing debt? “There will be ample revenue coming in to take care of this debt because there will be surpluses from this project. It has been evaluated by the bankers and found to be very attractive,” says a top company official. Also, the revenue share component for the airport is much less than for other airport projects such as Delhi or Mumbai. Consider this: For GMR’s Delhi airport, the revenue share is 46 per cent, which means that for every rupee the airport gets, 46 paise goes to the Airports Authority of India. In GVK’s Mumbai airport, this is 38.7 paise, whereas in the Navi Mumbai airport, it is only 12.6 paise. Some within the group like to believe that the financial viability of the project is perhaps why it could achieve financial closure even in the current challenging environment for fund raising.
The Navi Mumbai International Airport is a subsidiary of the GVK-operated Mumbai International Airport (74 per cent equity, while 26 per cent is held by CIDCO). The Mumbai International Airport has to contribute about ` 2,000 crore equity for the Navi Mumbai airport over the next three-four years. The cost of the Navi Mumbai Phase I project is ` 13,900 crore. The total cost, including Phase II, comes to ` 15,900 crore. All the mountain cutting and land-filling is to be completed in Phase I, which will build a capacity for 10 million passengers by 2022. The Phase II will increase capacity by another 10 million passengers with the addition of one more terminal by 2023. The project is spread over 3,000 acres. Of this, 97.5 per cent land has been handed over to the company.
Of the total group debt, the share of the company that runs the Mumbai airport is nearly ` 9,000 crore. The power business has a debt of around ` 12,000 crore, while the transport business/roads has a debt of around ` 3,000 crore. While we need to wait and watch how the Navi Mumbai airport debt is handled, a host of developments are keeping GVK promoters and officials busy at the moment.