Navi Mumbai Airport project: GVK may hit air pocket on fundraising

The sagging financials of GVK Group are a concern, said the analysts

The Hyderabad-based GVK Group will not only face technical difficulties to set up the new airport in a swampland filled with crocodiles and snakes in Navi Mumbai, but the group faces a daunting task in raising funds for the Rs 16,000-crore project due to its weak financial metrics. 

The group’s listed holding company, GVK Power & Infrastructure (GVK Power), has been classified as a non-performing asset (NPA) by a few lenders, as it failed to repay loans as of December 2016. Its consolidated debt was a staggering Rs 26,636 crore as of March last year, according to its financial statements.

On Monday, GVK Power’s loss-making subsidiary, Mumbai International Airport (MIAL) won the Maharashtra government’s tender to construct the airport, which saw only two bidders — GVK and GMR — with foreign companies staying away from the much-delayed project. 

While analysts do not track the stock closely, they say the sagging financials of GVK Group are a concern. It is part of Credit Suisse’s House of Debt study of highly indebted companies. “The company is drowning in interest expenses, and the off-balance sheet items are a landmine that haven’t been addressed,” said Tim Buckley, director of energy finance studies, Australasia, for the Institute for Energy Economics and Financial Analysis. Bankers said GVK’s NPA status for the listed group entity is a relevant factor, which they will take into account while considering proposal for additional funding.

"In this specific case, the project is expected to come up three years in future and, by then, some resolution of stress in the engineering, procurement and construction business would have happened, giving room for taking extra exposure," a banker said.

GVK Group's financial troubles began in September 2011, after it acquired Hancock Coal in Australia for $1.26 billion when coal prices were at their peak. As coal prices crashed, the financial closure of the Australian project was delayed - blocking its investments.  In filings to stock exchanges on Tuesday, GVK said it provided guarantees and commitments for loans amounting to Rs 7,882 crore taken by GVK Coal (Singapore) as of December 2016, an entity whose liabilities exceeds current assets by $2.1 billion (Rs 14,328 crore) as of June 2016. Some lenders classified the loan as NPA, and the company is now looking for additional funding from new investors, it said. 

The group blamed a combination of factors for its sagging financials. "The company has provided guarantees and commitments on behalf of several entities and is facing delays in overseas coalmine development projects where the company has provided guarantees for borrowings, losses incurred by gas-based plants and litigation on rights to claim capacity charge, cancellation of coal linkages for coal plant and re-negotiations of terms of power purchase agreements," the company said. As part of its strategy to become profitable, the company said it would sell stake in various entities to raise funds to reduce debt, and it hopes to win litigation and receive approvals from various regulators for its infrastructure projects. "The company will reach an optimal solution with non-controlling shareholders and lenders, and obtain coal/gas linkages for its projects," it said.

But its previous attempts to sell stake was delayed. On March 29 last year, GVK Group had sold 33 per cent stake in Bangalore Airport to Fairfax India Holdings for Rs 2,149 crore, leaving with itself just 10 per cent holding in the profit-making airport company as part of the efforts to reduce its debt burden. 

With inputs from Abhijit Lele in Mumbai