A proposal by Canadian firm Fairfax to buy up a 10 per cent stake in the Bengaluru International Airport Limited held by the Indian GVK Group has brought into the open differences between two senior Congress ministers in Karnataka, R V Deshpande and D K Shivakumar. Energy Minister Shivakumar, also chairman of the campaign committee for the Congress for the 2018 assembly elections, has written to Chief Minister Siddaramaiah questioning the proposal for GVK to sell the last of its stake to Fairfax. Industries Minister R V Deshpande, whose ministry holds 13 per cent in the project, has countered that the sale of the stake is a business decision by companies and the state cannot stop it.
In a letter to the chief minister earlier this month, Shivakumar said that the GVK Group must not be allowed to sell the 10 per cent stake it still holds — from an original 43 per cent, it had already sold 33 per cent to Fairfax India in 2016 — because this would leave the project without any experts in infrastructure when the airport needs more development.
“The Fairfax Group is only a financial investor and has never operated or maintained any international airport. If the GVK Group exits by selling their stake to a foreign company as proposed, then BIAL will be left with no one among the shareholders who have such an experience and expertise as required by the shareholders agreement,” Shivakumar wrote. He has asked the CM to initiate action to ensure the GVK Group stays as an investor and to “immediately put on hold their proposal to sell the remaining 10 per cent to the Fairfax Group”.
The energy minister has been closely associated with the project and was responsible for the creation of a committee of the Karnataka legislature to probe amenities and facilities in its nascent stages in 2008-09. Then, Shivakumar had questioned BIAL for failing to utilise 10 lakh sq ft of its real estate.
Deshpande, who has a say in the affairs of BIAL since the Karnataka State Industrial Infrastructure Corporation holds 13 per cent stake in it, has said a meeting of the BIAL board is yet to be convened for the stake sale and that the matter involves a business deal in which the state cannot interfere.
Sources in the industries and infrastructure department said a proposal for the sale is on the cards but a date for the board meeting is yet to be finalised. “There is a thinking that though the shareholders’ agreement requires investors with experience in airport infrastructure, this can be overcome by engaging consultants,” a source said.
Fairfax currently has a majority 38% stake in BIAL after buying 33% from GVK and 5% from Zurich Airport. Other shareholders at present are Siemens with 26% and the Airports Authority of India (AAI) and Karnataka State Industrial and Infrastructure Corporation (KSIIDC) with 13% each.
GVK Power and Infrastructure at one stage had 43%, having bought stakes from L&T (17%), Zurich Airport (12%) and Siemens (14%) between 2009-10, when BIAL was valued at $1 billion.
Fairfax India, ahead of its stake purchase in BIAL last year, also evaluated the Bengaluru Airport at $1billion without assessing the value of over 1000 acres real estate available for development. In letters to investors last year, the company said that “Fairfax India agreed to purchase 33 per cent of BIAL from GVK for $330 million, implying an equity value for 100 per cent of approximately $1 billion for the whole company. Concurrently, Fairfax India will also purchase Zurich Airports’ five per cent interest in BIAL for $49 million.”
The letter added, “BIAL also comes with 460 acres of excess land that can be monetised by the operator. So far, aside from building a hotel next to the airport and leasing it to the Taj Hotels Resorts and Palaces on a management contract, all other land is undeveloped. Bangalore’s historical population areas are getting congested, hence, the city is expanding in BIAL’s direction. There will be significant upside, over time, from monetisation of this real estate.”
Incidentally, in Delhi, around 45 acres of land around the airport were commercially exploited to generate Rs 1,471 crore for phase-I, while in Mumbai, 30 acres were commercially exploited to generate Rs 1,000 crore. Fairfax India said in the letter that its investment team had evaluated four private airports in India — Delhi, Mumbai, Hyderabad and Bangalore — and come to the conclusion that BIAL offers the best investment opportunity on account of its profitability.
“While its current capacity is about 20 million passengers per annum, it handled over 22 million passengers in 2016. Plans are already in place to gradually expand the capacity of the airport to 60 million passengers by 2030. This will include building a second runway, an additional terminal building and related infrastructure. Land preparation for the second runway is already underway and about half completed,” the letter said.
According to sources in the Karnataka infrastructure department, a proposal for a third terminal at the airport is under consideration and this could require acquisition of more land for the project. “There are doubts over the alignment of a third runway on the presently available land and there could be need for acquisition of land around the airport,” a government source said.