Prove financial capability: Cidco puts GVK in dock over Navi Mumbai airport

Maharashtra government body City and Industrial Development Corporation (Cidco), which owns 26 per cent in the Rs 17,000-crore Navi Mumbai International Airport (NMIAL) project, has asked the GVK group to prove it has the financial capability to complete the project after its group companies were downgraded by a series of rating firms.  

At the same time, Bidvest of South Africa, one of the investors in Mumbai International Airport (MIAL), has moved the arbitration panel seeking to prevent GVK from issuing any shares to third-party investors unless it gets Cidco’s clearance in this regard.

Cidco had earlier written to GVK, saying that issuing 80 per cent in GVK Airport Holdings to third-party investors would reduce GVK’s effective stake in MIAL to 15 per cent and in NMIAL to 12 per cent. This is not in compliance with the conditions of the NMIAL concession agreement.

“The issuance of shares in GVK Airport Holdings would make incoming investors majority shareholders and could amount to a ‘backdoor entry’, and this will need to be reviewed carefully,” said a source close to the development.

According to GVK’s announcement, the new investors will own 80 per cent in GVK’s airport holding company, which, in turn, will own 74 per cent in MIAL after buying out Bidvest and ACSA’s stake. MIAL, in turn, owns 74 per cent in NMIAL.

Bidvest and GVK group are in litigation for more than a year over the former’s stake sale in MIAL to the Adani group and GVK’s right of first refusal. 

While a GVK spokesperson declined to comment, citing confidentiality, a Cidco official said once GVK’s responses were in, a panel led by the state’s chief secretary will take further action. A GVK source said inducting fresh investors would not hamper the NMIAL project and they would abide by all conditions.

 

In a communication dated May 20, Cidco said the financial stress of GVK group was causing insurmountable delay in equity infusion as required in NMIAL, and development was being affected. 
 

“The proposed senior lenders in their discussions with Cidco have conveyed that the present financial condition of the promoters of NMIAL is a major hurdle towards achievement of financial (closure) for the project,” Cidco wrote to GVK.

Cidco has asked NMIAL and MIAL to show that both are in position to satisfy all the conditions precedent (other than possession of the 100 per cent right of way of the site) to avail the initial disbursement under the financing agreements. 

“In this regard, MIAL/NMIAL is instructed to submit the necessary information, documents including confirmation that all the conditions precedent to the initial disbursement of the loan shall be satisfied in accordance with the agreements,” it said.

The authority asked MIAL to show that it has made the equity contribution to the project according to the terms of the concession agreement. “MIAL should submit all the details and documents evidencing infusion of such equity in NMIAL and maintaining it since infusion,” it said and asked for latest financial information of the bidders. Cidco also asked NMIAL to provide complete details of the actual expenditure made on the project till date.

Cidco's queries to GVK group on its financial health comes as the latter has been unable to secure funds from banks and start work on the project.

While Cidco has blamed the developer for delay, GVK has insisted upon availability of 100 per cent encroachment-free land before it commences construction according to the agreement.

This is the second time Cidco is writing to GVK about the fate of the project – thus showing the growing chasm between the partners. Earlier, Cidco had objected to the induction of investors — National Investment and Infrastructure Fund, Abu Dhabi Investment Authority, and PSP Investments of Canada — in November last year in GVK’s airport holding company.  

GVK and Cidco signed the concession agreement for the airport project in January 2018, setting 2021-end as the launch date. In July 2018, GVK tied up with YES Bank to raise loans of Rs 10,300 crore but the agreement was not executed and no amount was disbursed. Now, negotiations are underway with State Bank of India for a loan.

Last July, Larsen & Toubro was awarded the engineering, procurement, and construction contract for the project, but it has not yet been given an authorisation to start work.

"We have spent over Rs 2,000 crore in pre-development works. Around 97 per cent of the structures have been removed. Only around 100 families need to be shifted and an independent committee headed by retired IAS officer Subodh Kumar has been appointed to look into the issues of project affected persons," a Cidco official said. "GVK group can start work on runway and other facilities. Shifting of the remaining families can happen simultaneously. Works related to land filling, river channeling, and flood control are 95-100 per cent complete.”