Apollo Global leads race for stake in Hyderabad airport

Bid for 30% equity values GMR-led airport firm at Rs 6,800 crore

Apollo Global Management has emerged as the front runner to buy 30 per cent stake in the GMR Group's Hyderabad International Airport Limited (GHIAL) for Rs 2,000 crore, amid heightened interest among global investors for infrastructure projects in the country.

Founded by billionaire Leon Black, Apollo Global Management is a $186-billion private equity firm.

Sources aware of the development said last month, debt-laden GMR Infra shortlisted Apollo and Abu Dhabi's sovereign fund Abu Dhabi Investment Authority (ADIA), among five companies that had submitted bids for the stake.

Other bidders included Canadian pension asset manager PSP Investments; Flughafen Zürich, which operates the Zurich airport; and IDFC Alternatives, the private equity firm of IDFC.

Apollo's bid of Rs 2,000 crore - valuing the project at Rs 6,800 crore - was higher than ADIA's bid (Rs 1,400 crore). IDFC had submitted a bid of Rs 550 crore for a minority stake of 10 per cent, valuing the project at Rs 5,500 crore.

"The company (GMR) needs money to leverage debt and for pumping into new infrastructure projects," said a source aware of the development. "Hence, Apollo is being preferred over other bidders who have experience in running an airport."

Apollo's valuation is at 10 times EV/Ebitda as compared to global average of six to seven times for airport projects. EV/Ebitda is the ratio of enterprise value to earnings before interest tax depreciation and amortisation. GMR has mandated Credit Suisse for the stake sale process. The deal will help GMR Infra to strengthen its balance sheet which has been reeling under debt.

The group's debt stood at about Rs 45,000 crore by the end of the last financial year

Sources indicate that with the final two suitors fixed, GMR will negotiate further to try and revise the offers upwards.

"There is still much scope of negotiations because global biggies are bullish on the scope. In a month's time definitive agreements could be in place and the deal will be done by October," the source said.

Apollo declined to comment to a detailed questionnaire sent by Business Standard.ADIA, IDFC, Zurich Airport and PSP too refused to comment.

A GHIAL spokesperson, too, refused to comment on the matter.

GMR owns 63 per cent stake in the greenfield airport while Malaysia Airport Holdings Berhad has 11 per cent.

Airport Authority of India (AAI) and Telangana state own 26 per cent interest. Sources did not rule out the possibility of Malaysia Airport Holdings divesting the entire stake along with GMR's partial sale.

In FY 16 company clocked revenue of Rs 6,155 crore - a growth of 47 per cent. Multiple new brands such as Lacoste, Sunglass Hut, Almond House, William Penn has opened out lets in the airport which will boost non-aeronautical revenue- driving up the interest of strategic suitors.

This is the second airport project which has seen such intense bidding from foreign funds. In March, GVK sold 33 percent stake in Bengaluru International Airport to Canadian-billionaire Prem Watsa's Fairfax for Rs 2,149 crore at a similar valuation.

"It's an operational airport. You know the volumes; you know how the returns will be, traffic is growing at a decent pace plus it has a rental value, the global funds are not getting such opportunities in their local markets, hence they are bullish about projects in this part f the world," said Sanjeev Krishnan, partner and leader, private equity and transaction services, PwC India.