GVK divests stake in Bangalore Airport for debt reduction

GVK Power and Infrastructure informed stock exchanges on Monday that the company agreed to divest 33 per cent stake in Bangalore International Airport (BIA) to Fairfax holding corporation (FHC) and Fairfax Financial Holdings (FFH) for consideration of Rs 2149 crores. The divestment is through GVK’s wholly-owned subsidiary in Mauritius which will reduce GVK’s stake in airport to 10 per cent.

GVK Airport Developers, a wholly owned subsidiary of GVK had initiated a financing process last year to reduce its debt obligations to its lenders. Upon completion of transaction, there would be reduction of debt burden which would result in saving of interest cost to the extent of approximately Rs 300 crores per annum.  

On the financial front, GVK's total revenue from operations increased by 28.29 per cent year on year (YoY) to Rs 1016 crores in Q3FY16 from Rs 792 crores in Q3FY15. EBITDA stood at Rs 326 crores compared to Rs 227 crores in Q3FY15, an increase of 43.22 per cent YoY. EBITDA margin stood at 32.04 per cent in Q3FY16 compared to 28.70 per cent same period last year. The company faced a net loss of Rs 279 crores this quarter compared to a loss of Rs 209 crores in Q3FY15. The net loss is on back of substantial interest burden on company. The company paid interest of Rs 555 crores this quarter compared to loss of Rs 353 crores in Q3FY15 an increase of 57.32 per cent YoY. The interest burden stood at 54.61 per cent this quarter compared to 44.53 per cent same period last year.

The divestment inititive will help company to decrease debt and interest burden and improve financials.  With GVK now set to hold only 10 per cent stake in BIA, contribution of profits from the Bangalore airport operations will also shrink proportionately. Nevertheless, the gains from interest cost savings will be more than the profit contribution from BIA. The stock of company is trading at Rs 7.21 an increase of 1.26 per cent from the previous close.