June 25--NEW DELHI -- GMR Infrastructure Ltd-led Hyderabad airport plans to create a separate arm for its fuel farm business and then sell a 74 percent stake in it.
The move may help the airport company clean up its books as it seeks the airport regulator's approval for raising tariffs, but the move could increase the cost of fuel.
GMR Hyderabad International Airport Pvt. Ltd, or GHIAL, has appointed KPMG to advise it on hiving off the fuel farm business, said two people familiar with the matter. They asked not to be named as the process is still under way.
The airport will transfer its fuel farm into a fully owned special purpose vehicle (SPV) that will divest a 74% stake, said one of the two people familiar with the matter.
The SPV could be valued at Rs.142 crore and will have a debt-equity ratio of 1.5:1, with equity at Rs.57 crore and debt at Rs.85.56 crore, this person said.
The second person confirmed the move.
Indian Oil Corp. Ltd and Bharat Petroleum Corp. Ltd own 37% each in Delhi Aviation Fuel Facility Pvt. Ltd; Delhi International Airport (P) Ltd, also run by GMR, holds 26%.
The SPV will have a 25-year concession from GHIAL and the investor buying a 74% stake in it may be allowed to charge from aviation turbine fuel suppliers an infrastructure fee, subject to the approval of the Airports Economic Regulatory Authority of India (AERA).
The infrastructure fee, if allowed, could make fuel more expensive.
A GMR spokesman declined to comment on the matter.
GHIAL is a public-private venture of GMR Group, Malaysia Airports Holdings Bhd, the government of Andhra Pradesh and the Airports Authority of India (AAI). GMR Group holds a 63% stake and Malaysia Airports 11%, while the Andhra Pradesh government and AAI hold 13% each.
The airport operator already has Hyderabad Menzies Air Cargo Pvt. Ltd, GMR Hyderabad Aerotropolis Ltd, GMR Hyderabad Airport Resource Management Ltd, Hyderabad Airport Security Services Ltd, GMR Hyderabad Aviation SEZ Ltd, GMR Hyderabad Multiproduct SEZ Ltd, GMR Hotels and Resorts Ltd, Hyderabad Duty Free Retail Ltd, Asia Pacific Flight Training Academy, GMR Airport Handling Service Co. Ltd, as its subsidiaries.
The Hyderabad airport charges domestic passengers Rs.484 and about Rs.1,910 from international passengers that go towards recovering airport costs. It is now in the process of revising these charges as the control period for which they were allowed is ending.
"I think definitely the airport sector has improved significantly both on sequential quarter as well as on the previous year quarter basis. One of the significant reasons apart from the fact that there has been growth on non-aeronautical side has been that we have revisited the policy of accounting for NACIL (now AIR India Ltd) in the last quarter," Sidharth Kapur, chief financial officer, GMR Group, said in an analyst call late in May.
"We had applied for revision in aeronautical charges for the Hyderabad airport for the first control period, which was starting from 1 April 2011. AERA after their own internal due diligence has come out with a consultation paper, the response on which is due by end of next month. They have, in the consultation paper, preferred the single-till approach and we will, of course, be responding and there will be responses from various stakeholders on the consultation process. We will wait to see what the final outcome is from AERA, which should be out sometime in July," Kapur said.
Under single till, all principal airport activities including aeronautical and retail are taken into account to determine airport charges. In contrast, only aeronautical- or flying-related activities are considered under the double-till principle. A hybrid model combines these two, proving cheaper for airlines than the dual-till model but slightly more expensive than the single-till one.
"It is possibly to leverage value and also further deleverage. This will also help them to be asset light in non-core areas of their airport business. We see GMR airports to increasingly focus on core areas," said Kapil Kaul, South Asia CEO of consulting firm CAPA.
Copyright 2013 - Mint, New Delhi
