CBI probe, funds crunch, ratings downgrade: The many troubles of GVK Group

GVK Group founder G V Krishna Reddy is facing his biggest test yet as the Central Bureau of Investigation (CBI) has accused him of siphoning off Rs 705 crore from Mumbai airport’s funds. 

This comes at a time when the GVK Group is already fighting multiple battles. It is trying to stave off Adani Group’s entry as a shareholder in the Mumbai airport project. Rating agency CRISIL and Maharashtra government’s City and Industrial Development Corporation (Cidco), which owns 26 per cent in the Navi Mumbai airport along with GVK Group, have separately flagged off concerns over its finances.

For Reddy, the execution of Mumbai and Navi Mumbai airport projects has not been a smooth ride either. Real estate development on Mumbai airport land and the work on Navi Mumbai airport have been inordinately delayed, which have prompted rating downgrades and raised questions on its financial capabilities.

In May, CRISIL downgraded Mumbai International Airport’s (MIAL’s) short-term loans, project loans, and Rs 2,000 crore of proposed non-convertible debentures due to cash flow constraints. MIAL’s debt continues to be under rating watch with negative implications, the rating agency had said.

With curtailed airport operations after the Covid-19 pandemic, liquidity challenges have increased. MIAL had liquidity levels of Rs 130 crore, as of May 12, to meet its upcoming debt servicing obligations and is exploring options with lenders and other stakeholders for resolving this. 

The monetisation of the 17-acre airport land has faced prolonged delays and CRISIL said it was unlikely to happen before June, resulting in challenges in servicing loans.

 

A GVK Group spokesperson did not immediately respond to queries on the topic. CRISIL declined to comment.

In 2006, the Airports Authority of India executed an agreement with the GVK group to run the Mumbai airport for 60 years in return for 38.7 per cent annual revenue share. To its credit, the group executed a swanky new airport terminal and airside improvements helped increase daily flight movements from 550 in 2006 to over 900 before Covid-19 disrupted air traffic globally. But the group’s plans to free the airport land of slums and monetise land parcels have not gone as planned. 

In 2014, the group had announced plans for commercial development of 200 acres of airport land under SkyCity project, but there’s been little progress. “MIAL is expecting premium for its land parcels, citing easy access to airport and metro line, but the real estate market is subdued. Except for a few hotel projects there has not been much development on airport land,” a real estate consultant remarked.

A 5.5-acre land parcel sub-lease to Oasis Reality for Rs 580 crore in 2014 also did not go through.

Meanwhile, the slum clearance scheme has faltered, and around 18,000 tenements built for slum dwellers on airport land lie unused. "Demand for in situ rehabilitation of slum dwellers is pending for five years and we are fighting for it," said Bharatiya Janata Party legislator Parag Alavani.

Aviation industry observers say the CBI case may impact the group's fundraising plans and it may feel the need to buy out 23.5 per cent stake in Mumbai airport held by two South African companies — ACSA and Bid Services Division Mauritius (a Bidvest investment arm). 

Though a fall in air traffic has reduced the extreme urgency for a second airport for the city, delays in financial closure of Navi Mumbai airport project prompted Cidco to seek an explanation from the GVK group. A source said Cidco had recently sent notices to GVK as it failed to start work and said that delays in equity infusion were adversely impacting the project. 

On its part, GVK has insisted upon availability of 100 per cent encroachment-free land before it commences construction of Navi Mumbai airport.