Delhi airport upgrade under cloud

Delhi International Airport Ltd (DIAL), the GMR-led consortium that is modernising and operating India’s busiest airport, is seeking to change its lead banker from private sector ICICI Bank to government-owned Canara Bank even as serious questions are being raised about the project’s financial viability.

The company is facing difficulties raising further loans to complete the Rs 8,890-crore project, scheduled to be ready by March 2010, owing to the reluctance of some promoters to augment equity, heavy revenue-sharing commitments and lower-than- expected revenues.

Delhi airport is the first of the country’s airport to start work on a modernisation plan under a public-private partnership. The DIAL consortium comprises Bangalore-based GMR Infrastructure (50.1 per cent), Fraport AG and Malaysia Airport Holding Berhad (10 per cent each), India Development Fund managed by IDFC (3.9 per cent) and the Airports Authority of India (AAI), which has 26 per cent stake.

Of the sanctioned loan of Rs 4,940 crore, DIAL has raised Rs 2,500 crore; by the end of March, it needs to raise a total of Rs 3,807 crore.

The problem is the contribution toward equity by the promoters. Under the original plan, the equity portion was Rs 840 crore till March 2010 and it needed to raise a deposit of Rs 3,110 crore by leasing land for hotels around the airport. This was to be treated as quasi-equity. The promoters have contributed toward equity Rs 700 crore till now but have not been able to raise the full lease deposit.

Banks, therefore, are asking the company to replenish the lease deposit by equity. Since banks have disbursed over Rs 2,500 crore, promoters need to fork out around Rs 2,000 crore towards equity contribution immediately. Till now, they have contributed only Rs 700 crore toward equity, leaving a gap of Rs 1,300 crore. By March 2010, the total equity contribution needs to be Rs 3,950 crore.

It is learnt that the AAI is reluctant to provide additional equity. Since it continues to enjoy full voting rights as long as it owns 10 per cent, it sees no reason to invest additional funds, sources close to the development say. AAI chief VP Agrawal declined to comment.

The bankers of the consortium are reluctant to lend ahead of further equity infusions because more debt would skew the debt:equity ratio, which has already breached 3:1 against the agreed 1.25:1.

The prospects of DIAL providing additional funds through quasi-equity also look bleak because the company may raise just Rs 500 crore from leasing the land around the airport for hotel projects. The loan agreement required DIAL to produce a commitment of 20 per cent, or Rs 622 crore, as the first tranche.

DIAL declined to comment and said it would not reply to a detailed questionnaire.

Doubts about raising loans for the project — which is about a third complete — have also arisen because of interest costs. The original project report had assumed a financing cost of Rs 411 crore on Rs 4,940 crore at 9 per cent from 2011. Banking sources now say with interest at 12 per cent, financing costs stand at Rs 600 crore.

The ability to repay the higher interest rate is in doubt owing to lower revenue owing to slower passenger growth. In 2007-08, DIAL earned revenues of Rs 860 crore against the projection of Rs 853 crore.

The complication here is that DIAL is committed to sharing 46 per cent of its revenues with AAI and 3 per cent with operator Fraport AG.

“After deducting nearly 49 per cent of the revenues towards concessions and operating fees, it would be difficult to make the project viable since operation and maintenance costs alone constitute around 35 per cent,” the banker added.