Banks team up with bidders for airports

Exclusive project financing deals in place.

For the first time in the history of project financing in the country, companies and banks are entering into exclusive arrangements. All companies that are bidding for airport privatisation projects want banks to enter into exclusive "tie-ups" with them and commit funds.

This means once a bank strikes a deal with a company, it will not be able to finance others for similar projects. Banks are willing to sign such agreements with bidders as there is fierce competition among them to grab the Rs 10,000 crore lending opportunity.

"This is a unique situation, never seen before. Companies are insisting on this as they are sharing their business plans with the lenders. Naturally, they like to have a comfort that the competition does not get to know their plans. This is possible only if they have an exclusive arrangement with lenders," said an institutional source.

Bharti, Reliance, Larsen & Toubro, real estate giant DLF, Piramal and the GMR Group, which is building the Hyderabad international airport, have bid for the privatisation of the Mumbai and the Delhi airports. The successful bidder will need around Rs 5,000 crore for developing each of these airports.

All of them have approached banks and institutions with proposals for entering into exclusive arrangements.

A senior banker said: "It is a win-win situation for both the parties. Companies are assured of funding, while banks are not compromising on the price of money they are lending."

Another banker said unlike in the telecom sector where successful bidders approached banks, in the case of airport financing, bidders were sewing up deals with lenders even before bidding.

Bankers said there were three stages in the "exclusive arrangement". In the first stage, banks show interest to team up with companies. In the second stage, companies choose their banks and enter into exclusive agreements.

In the third stage, when the bids are opened, a bank that has tied up with an unsuccessful bidder can join a successful bidder and lend to the project if the companies want that.

It is learnt that nine bidders have been considered eligible after they submitted the expressions of interest for the modernisation of the Mumbai airport. The request for the proposal document for the modernisation of the Mumbai airport will be finalised shortly.

The Mumbai and Delhi airports account for nearly 75 per cent of the total profit of the Airports Authority of India.

Win-win scenario

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• Banks willing to sign deals with airport project bidders, eyeing the Rs 10,000 crore lending opportunity
• Bidders like Bharti, Reliance, L&T, DLF, Piramal and the GMR Group have approached banks for funds
• Under the exclusive deals, banks will not be able to finance others for similar projects