Battle for MIAL: Foreign investors serve legal notice on GVK group

Call Mumbai airport stake sale to Adani a breach of agreement

A consortium of foreign investors — led by UAE’s sovereign fund Abu Dhabi Investment Authority (ADIA), India’s sovereign fund NIIF, and Canada’s Public Sector Pension (PSP) Investments — has served legal notice on the GVK group, saying the stake sale in Mumbai International Airport (MIAL) to the Adani group would be a breach of the agreement they had signed last year.

Adani is in talks with GVK promoters (the Reddy family) and two minority investors to buy 74 per cent stake in MIAL.

The consortium had signed a binding deal with the GVK group in October 2019 to acquire a controlling 80 per cent stake in GVK Airport Holdings, the airport holding entity for Rs 7,614 crore, which would have given it 60 per cent stake in MIAL. However, the transaction couldn’t be completed as the deal was challenged in court by the Airport Company of South Africa (ACSA) and Bidvest — minority partners in MIAL owning 23.5 per cent stake. GVK has challenged it saying that they have the right of first refusal to buy the stake.

A money laundering case filed by the CBI last month against G V K Reddy and son Sanjay Reddy for siphoning off funds in MIAL, made matters worse.

“Our clients have expressly confirmed that they have not terminated and are not looking to terminate the binding agreement with GVK. The binding agreement is valid till January 27, 2021, and any binding agreement with the Adani group would be a breach of the agreement, which is still in effect,” said the notice, sent by the consortium’s legal firm AZB Partners to GVK group and the lenders’ consortium.

People in the know said the ADIA-led consortium had agreed to give a ‘carve-out’ to the GVK group promoters, to discuss an alternative transaction with the Adani group earlier in August. A carve-out is an exception made by the buyer to the exclusivity clause.

However, the consortium in its legal notice said the exception doesn’t allow the GVK group to terminate the existing transaction and enter into a new binding agreement.  “Only a limited exception was given to GVK, to explore an alternative transaction with the Adani group. But such limited waiver doesn’t permit the execution of a transaction or binding agreement,” the consortium said in its legal notice.

A person aware of the development said the consortium was opposed to any behind-the-door negotiations with the Adani group, and wanted the sale process to happen through a transparent process. 

The Reddy family, which has pledged its entire holding in MIAL with lenders, is finding it difficult to service Rs 6,000 crore. The pandemic has only aggravated woes, with airport operations now under severe pressure. CRISIL last week downgraded the debt instruments of MIAL because of low visibility in cash flows against debt-servicing requirements. The rating agency downgraded Rs 9,782 crore of MIAL’s bank debt, and Rs 2,000 crore of non-convertible debentures. State Bank of India has the highest exposure, with HDFC, ICICI Bank, Goldman Sachs, Axis Bank, and YES Bank being the other lenders.

The Reddy family is due to repay the debt in the coming months, failing which the lenders could invoke the pledge and sell the stake to a third party. 

In case the lenders do decide to sell the stake, the consortium of foreign investors wants the transaction to take place in accordance with the Insolvency and Bankruptcy Code 2016, under which banks may put the 74 per cent stake up for sale.

“It is in our client’s belief that it would be in the best interest of everyone that any transaction be undertaken following a transparent and independent sale process. This will help identify the best owner and maximise value for all shareholders,” said the notice. The person said not following such a process would send a wrong signal to foreign investors, who have invested billions of dollars in India.

 A spokesperson for GVK group didn’t comment on queries. A spokesperson of ADIA, too, declined to comment while PSP didn’t reply.