GMR Airports Infrastructure Limited (Formerly GMR Infrastructure Limited) (GIL) has announced the approval by its Board, of the Composite Scheme of Amalgamation and Arrangement of GMR Airports Limited (GAL) with GIL ("Merger").
Merger - a Significant Step towards further Strengthening of Balance Sheet to capitalize on Upcoming Growth Opportunities
With an objective of enhancing shareholders value, we embarked on a journey in 2020 of creating a pure-play airport company by:
- Entering into a Strategic Partnership with Groupe ADP in early 2020 to create a world class airport platform whereby Groupe ADP agreed to purchase 49% stake in GAL. At the time of the transaction, Groupe ADP had pegged equity earnouts of ~8% of GAL and cash earnouts of INR 1,060 Cr to GIL.
- Post the above and in line with our stated objective of unlocking value for shareholders, we successfully completed the demerger of the non-airport business of GIL into GMR Power and Urban Infra Limited (GPUIL), with effect from December 31, 2021. This resulted in GIL becoming a pure play, 2nd largest private airport operator in the world.
- The Merger would result in taking the GMR's partnership with Groupe ADP to the next level. In addition, it will enable an earlier and full settlement of the earnouts, which for a period of 2 years were adversely impacted due to Covid conditions. With the subscription of FCCB's by Groupe ADP, GIL will be further deleveraged by repaying corporate debt and also settling most of the contingent liabilities related to GPUIL.
The summary of the process is as follows:
- GAL, the existing Airport Platform unlisted entity, will merge with GIL, the listed company. GIL will continue as the listed public entity, post completion of the Merger
- GIL and Groupe ADP will settle the cash earnouts to GIL at INR 550 Cr and the equity earnouts whereby GIL's stake in GAL increases to 55% (pre-merger) from 51%
- GIL will raise ~EUR 331 mn (INR 2,900 Cr) from Groupe ADP through a 10-year 6.76% p.a. coupon (Simple Interest) FCCBs due in 2033. The coupon on FCCBs will be accrued till the end of the tenure. The conversion price is INR 43.67/- which is 10% premium to the FCCB regulatory floor price under the FCCB Scheme.
Merged GIL - Poised for Next Leg of Growth
Post the Covid pandemic, demand for air travel has picked up substantially which will speed up airport privatization initiatives of the respective Governments across the World. Merged GIL, with an improved Balance Sheet, will be in a much stronger position to further scale up the airport business by judiciously participating in profitable opportunities mainly in India, South Asia, South East Asia and Middle East.
Shareholding Pattern upon Completion of Merger
Immediately upon completion of the merger, GMR Group will remain as the single largest shareholder of GIL, with GMR Group owning 33.7%, Groupe ADP holding 32.3% and Public holding 34.0% respectively of the paid up equity share capital. This is achieved through categorizing Groupe ADP's shareholding in Merged GIL into two instruments (i) Ordinary equity shares, and (ii) Optionally Convertible Redeemable Preference Shares (OCRPS).
Post completion of merger, GMR Group would continue to have management control over Merged GIL while Groupe ADP will be categorized as co-promoters of GIL and have commensurate Board representation.
Key Rationale for Merger
The underlying decision to proceed with the Merger stems from our continuous focus on creating significant value for shareholders by:
- Strengthening the strategic relationship with "Groupe ADP" by bringing them at the Listed Company level. Further, fresh issuance of FCCBs to Groupe ADP will result in reduction in cost of capital. Going forward, an improved Balance Sheet will facilitate greater access to growth capital at lower cost. Groupe ADP's subscription to FCCBs is a testimony to the strength of relationship between GMR & Groupe ADP.
- Deleverage GIL Balance Sheet by repaying corporate debt and settling majority of contingent liabilities related to GPUIL
- Collapsing of the corporate structure will enable minority shareholders of the listed entity to move closer to the airport assets and cash flows thereby eliminating HoldCo/Subsidiary discount usually assigned by the capital markets
- Simplified corporate holding structure in line with global best practices will result in greater financial efficiencies - improving the mechanism for upstreaming of free cashflows and optimization of cost by elimination of additional corporate layers
Indicative Timelines and Approvals
The Merger Scheme and the proposed transaction is subject to customary Closing conditions. The Scheme is subject to the receipt of requisite approvals from the Stock Exchanges, Securities and Exchange Board of India ("SEBI"), the National Company Law Tribunal ("NCLT"), other statutory and regulatory authorities under applicable laws and respective shareholders and creditors. The merger is expected to be completed within FY24 following completion of all relevant approvals.
Mr. GM Rao, Chairman, GMR Group said, "We welcome Groupe ADP, our strategic partner to the listed entity. Merger signifies a transformative event and will be value enhancer for all the stakeholders including shareholders, employees and for the aviation industry. Our strong partnership with Groupe ADP emanating from combined resources and expertise will enable the Company to capture fastgrowing airport business opportunities and maintaining our leadership position in the airport business".
Speaking about the merger, Mr. Kiran Kumar Grandhi, Corporate Chairman said, "As envisaged earlier in 2020 to simplify the corporate structure and strengthen Balance Sheet, this merger is a step in the right direction, taken at the right time. The merger will achieve financial and operational excellence, encourage innovation and adoption of new technologies, enabling GIL to stay ahead of competition. We will continue to focus on selective growth opportunities whilst simultaneously maintaining our approach towards a conservative Balance Sheet."
Morgan Stanley India were financial advisors to GIL solely for the purpose of providing a Fairness Opinion on the merger exchange ratio.
Ernst & Young were the valuer appointed by GIL and KPMG were the valuer appointed by GAL for carrying out valuation and merger exchange ratio.
ICICI Securities were financial advisors to GAL solely for the purpose of providing a Fairness Opinion on the merger exchange ratio.
Shardul Amarchand Mangaldas & Co (SAM Co) acted as the legal advisors.
Shares of GMR Airports Infrastructure Limited was last trading in BSE at Rs. 42.68 as compared to the previous close of Rs. 41.72. The total number of shares traded during the day was 903091 in over 3777 trades.
The stock hit an intraday high of Rs. 42.80 and intraday low of 41.91. The net turnover during the day was Rs. 38353260.00.