Uncertainty over Fairfax investment in BIAL to hit GVK hard

Debt-laden GVK had stake sale deal with Fairfax for Rs 2,149 cr leaving with itself 10% holding

The latest comments from Fairfax India Holdings Corporation about the uncertainty over closing the transaction related to its investment in Bangalore International Airport Limited (BIAL) came as a setback to Hyderabad-based GVK Group, which had sold 33 per cent of its stake in the airport company to Prem Watsa-led group in March last year.

In a statement issued as part of the prospectus involving a $150 million public offer today, the Toronto Stock Exchange-listed Fairfax said given the continued delays and impediments, it was not sure of the timing with respect to closing the BIAL transaction or the likelihood of the transaction closing.

Earlier the company stated that it was hopeful of closing the transaction by the end of 2016.

On March 29, 2016, the debt-laden GVK group had announced the stake sale deal with Fairfax India Holdings for Rs 2,149 crore ($322 million) leaving with itself just 10 per cent holding in the profit making airport company as part of the efforts to reduce its debt burden.

In the following month, Fairfax had also bought 5 per cent stake held by Flughafen Zurich AG in BIAL.

The closing of these investment transactions was pending since then for want of security clearance from Ministry of Civil Aviation among other reasons.

When contacted for a response to the doubts expressed by Fairfax on the very possibility of closing the deal, GVK Group's chief financial officer Isaac George refused to make any comment except saying that the security clearance from the Ministry of Civil Aviation was pending.

According to a news report, the matter was currently looked into by the prime minister's office.

However, as per the Fairfax statement, the uncertainty on the timing and the likelihood of closing the transaction persists at least on four counts:

"As of date of this press release, certain of the conditions to closing remain outstanding and there is no certainty as to if or when such conditions, consents and approvals will be satisfied or waived. Such conditions, consents and approvals include: Transaction approvals from the board of directors of BIAL, certain lenders of BIAL and certain governmental authorities; 2) obtaining security clearance from the Indian Ministry of Civil Aviation in respect of certain subsidiaries of the company and Fairfax and certain of the company's and Fairfax's proposed directors of BIAL following completion of the BIAL transaction; 3) finalising certain lending arrangements between the company and its lenders; and 4) receipt of a no-objection certificate from a relevant authorised dealer under the Foreign Exchange Management Act, 1999, with respect to permitting a pledge of shares in connection with the BIAL transaction," it said.

This is the second time the GVK Group was facing this kind of uncertainty over its fundraising efforts in the airport business. Singapore-based Changi Airports International had backtracked on its initial decision to acquire 26 percent equity stake for over Rs 2,200 crore in the GVK group's airport arm way back in 2011.

The stake sale deal in BIAL came as a big breakthrough for GVK, which had been exploring multiple ways to raise Rs 3000 crore -Rs 4000 crore in the past 2-3 years essentially to reduce its debt. It has been sitting on a consolidated debt pile of close to Rs 23,000 crore besides making losses from 2012-13. The company started incurring losses primarily from its power business owing to the underutilisation of installed capacity for want of natural gas.

GVK operates both Bengaluru and Mumbai Airports and is currently bidding for the development of Navi Mumbai Airport project.