Adani Group acquires 74 per cent stake in Mumbai International Airport

The deal has been finalised even though a consortium of foreign investors which had earlier signed a binding agreement with GVK group for buying the asset has legally challenged it

The Gautam Adani-led Adani group has acquired a 74 per cent stake in Mumbai International Airport Limited (MIAL), a joint venture between the Airports Authority of India and GVK Industries. MIAL operates the Mumbai airport — the largest in the country after Delhi.

The deal marks the culmination of a two-year-long fight during which the Reddy family —owner of the GVK group — scouted for buyers, struck binding agreements with a consortium of foreign investors, and fought legal battles to thwart the Adani group’s hostile takeover attempts. In the end, the Reddys succumbed to the default pressure from the lenders’ consortium, led by State Bank of India. Sources said the lenders to the GVK group forced this deal, concerned by the group’s inability to repay debt.

The airport business was virtually grounded during the pandemic. A money laundering case filed by the CBI against G V K Reddy and his son Sanjay Reddy for siphoning of funds in MIAL made things worse as lenders started freezing accounts for forensic audit.

Losing control of Mumbai Airport follows GVK group’s exit from the Bengaluru Airport in 2017. This may mean an end to the firm’s airport foray which began in 2006 as it won the bid to manage Mumbai Airport.

Under the transaction, announced on Monday, Adani Airport Holdings (AAHL), the holding company of Adani Group for its airports business, will acquire a 50.5 per cent stake in the GVK group.

Additionally, AAHL will also acquire 23.5 per cent of minority partners Airport Company of South Africa (ACSA) and Bidvest. ACSA and Bidvest hold 10 and 13.5 per cent stake respectively in MIAL. GVK had earlier moved court to block the attempts of sale, citing they have a right to first refusal. However, the company hasn’t been able to garner funds.

Acquiring 74 per cent in MIAL gives Adanis control of Navi Mumbai Airport- the upcoming second airport in Mumbai in which MIAL holds a 74 per cent stake.

The Adani group has publicly disclosed plans of becoming ‘India’s leading airport operator’, something it also stated in its annual report for FY20. It also stated in the annual report that growing domestic passenger traffic is providing immense opportunity to expand and scale up its business.

“A large infra player stepping in will provide the much needed financial headroom for MIAL. Also this will help in greater capital allocation for the much needed development of the second airport in Navi Mumbai,” said Jagannaryan Padmanabhan, director and practice lead, transport and logistics, at advisory firm Crisil.

Sources said the holding company GVK Power and Infrastructure and MIAL had a deadline of August for debt repayment to a consortium of lenders which included State Bank of India, HDFC Bank, Axis Bank and Goldman Sachs.

The holding company has a debt of around Rs 6,000 crore, while MIAL’s liabilities are around Rs 8,000 crore. Almost the entire 50.5 per cent stake of the GVK group was pledged with the lenders.

As part of the agreement, AAHL will acquire all the debt on the books of GVK group’s subsidiary GVK Airport Developers, the airport holding company, and subsequently convert that into equity addition, to release the guarantee given by the holding company against the debt.

“It was important that we bring in a financially strong investor in the shortest possible time to improve the financial position of MIAL as well as to achieve financial closure of Navi Mumbai Airport. It is under these circumstances that we agreed to cooperate with Adani to achieve these objectives,” said GVK Reddy, chairman of GVK group.

However, the GVK-Adani deal could face legal hurdles as the consortium of foreign investors including UAE’s sovereign fund ADIA, India’s sovereign fund NIIF and Canada’s Public Sector Pension Investments, which last October had signed a binding agreement with the GVK group for buying the asset, has challenged it and has written to Finance Minister Nirmala Sitharaman seeking resolution through the IBC.

The consortium has served a legal notice to the GVK group and lenders, stating that selling stake in MIAL to Adani group will be a breach of the agreement. 

“We have expressly confirmed that we have not terminated or are 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,” the legal notice said.

However, GVK Reddy on Monday said in a communication to Sitharaman that the deal collapsed because the consortium had withdrawn funds from the escrow account without permission from the arbitral tribunal.