Groupe ADP takes large stake in GMR Airports and blindsides Tata Group
France's Groupe ADP has signed a share purchase agreement for the acquisition of a 49% stake in GMR Airports, representing investment of INR107.8 billion (USD1.5 billion). The deal came out of the blue, as one had already been agreed with a consortium led by India's Tata Group.
Groupe ADP, which operates the two main Paris airports, as well as associated infrastructure in the French capital and airports and terminals around the world, reported a very positive FY2019, with revenue increasing by 17.3% and EBITDA by 5.5%.
Phase one of the acquisition will be completed "within the coming days" (the announcement was made on 19-Feb-2020), for a 24.99% stake, and the second phase, for a further 24.01%, is to be concluded in the coming months and is subject to certain regulatory conditions: notably, obtaining the customary regulatory approvals - in particular, from the Reserve Bank of India.
In terms of passenger numbers, the combined entity is claimed to be the biggest airport operator in the world, with 336 million passengers in 2019.
But is it really 'global', as it claims to be? And what potential dangers yet lurk for either party?
Summary
- Groupe ADP takes large stake in GMR Airports and foils Tata's bid.
- The two firms foresee a mutual way to build a global network.
- GMR has been reclaiming its previous status in the sector.
- Potential problems still lie in wait before the deal is finally concluded.
Second phase is subject to regulatory conditions
The operation will be processed in two phases.
Phase one will be completed "within the coming days" (the announcement was made on 19-Feb-2020) for a 24.99% stake.
The second phase, for a further 24.01%, is subject to certain regulatory conditions: notably, obtaining the customary regulatory approvals - in particular, from the Reserve Bank of India - to be concluded in the coming months.
GMR Infrastructure retains majority control
Upon completion of the deal, GMR Airports will be jointly owned with GMR Infrastructure Limited, which will hold a 51% stake and retain control over the company. ADP will be granted extended governance rights, including the presence of board members on GMR Airports' board equal to that of GMR Infrastructure Limited board members. ADP will also have the right to appoint predetermined key executives within GMR Airports.
Groupe ADP chairman and CEO Augustin de Romanet has commented on the acquisition, stating that it "fits within Groupe ADP's strategy" and enables it to build a "leading worldwide network of airports" with a "solid industrial expertise" and "strong development capacities".
Groupe ADP, which operates the two main Paris airports, as well as associated infrastructure in the French capital and airports and terminals around the world, reported a very positive FY2019, with revenue increasing by 17.3% (mainly as a result of acquisitions) and EBITDA by 5.5%.
This was recently reported in a separate CAPA article.
International divisions made a major contribution to the result, although revenues for the consulting arm, ADP Ingénierie, decreased slightly.
An updated map to include the Indian transaction shows that Groupe ADP is not particularly strong in any one part of the world. Its influence in Asia used to be greater than it now is.
Active airports for Groupe ADP
So the question is: what is Groupe ADP taking on?
GMR has slowly been rebuilding a reputation in the business and has several irons in the fire
GMR Airports was once a bigger player in the business than it is presently, but its overseas influence has waned, along with GVK's, while it has retained a presence in India itself.
Currently, it operates airports in Delhi (Indira Gandhi, with other investors); Hyderabad (also with other investors); Nagpur and Bidar (under the auspices of GMR Hyderabad International Airport Ltd), which receives a lot of tourist visitors.
Abroad, it operates Mactan-Cebu Airport in the Philippines with Megawide and is the designated concessionaire, along with the local company GEK Terna (as 'Ariadne'), for the Kastelli/New Heraklion airport in Crete, Greece, having previously expressed interest in operating Greek regional/island airports (for which there will eventually be a second tranche, the first having been won by Fraport). That concession is for 35 years.
As of Jan-2020, GMR Infrastructure is one of the qualified bidders, along with Incheon International Airport Corporation, Groupe ADP and Corporación América Airports in a tender to operate Airports of Montenegro, the operator of Tivat Airport and Podgorica Golubovci Airport.
Perhaps more pertinently, within India it was one of four bidders for the tender for the development and operation over 40 years of Jewar Noida International Airport (the second Delhi airport) as Delhi International Airport Ltd, along with the aggressive Adani Group, Flughafen Zürich AG and a consortium made up of Anchorage Infrastructure Investments Holdings Limited and Fairfax Holdings. However, it lost out there, to Flughafen Zürich, in Nov-2019.
In Thailand, in Sep-2019, Thai AirAsia and GMR Group reported that they had collaborated as part of a consortium to bid for a USD2 billion expansion project at Utapao Rayong-Pattaya International Airport.
Thailand's government launched projects at the airport as part of its Eastern Economic Corridor plan, which included a high-speed rail link and a new passenger terminal, seeking to expand Utapao's annual passenger handling capacity to 15 million.
Meanwhile, the Investment Board of Nepal reported that eight companies had expressed interest in bidding on a tender for the development of Nijgadh International Airport, including GMR Infrastructure.
Groupe ADP probably attracted by GMR's ambition
Taking all these into account, it is reasonable to expect that it is the fact that GMR pitched for the second Delhi airport that is of particular interest to Groupe ADP, although it lost out on that occasion. That at least demonstrates ambition.
And that is an important aspect because GMR has been through a torrid time financially in recent years, with talk of sell-offs, IPOs and takeovers.
In the latter part of 2019 it looked as if a consortium comprising India's Tata Group, the private equity investor SSG Capital and Singapore's GIC (Sovereign Wealth Fund) would buy a 45% or greater stake in GMR Airports. In the case of Tata, it would have made it an active participant in the sector after years of trying.
Tata Group was caught off guard, but its airline interests were a no-no
The deal values GMR Airports at 22% higher than the valuation in Mar-2019 when its parent, GMR Infrastructure, signed a deal to sell a 44.4% stake to that Tata-led consortium, but GMR had revised that deal lately to sell a 49% stake.
The deal with ADP to secure this arrangement, which came literally out of left field, puts paid to the one with Tata. The original deal would have been the biggest private equity transaction in India's airport sector. The Indian group will retain a 51% stake and management control.
It appears that the Tata deal fell foul of a lack of government approvals, particularly a rule that prevents airline operators from owning a stake of more than 10% in an airport company. The Tata Group operates two airlines in India, in joint ventures with AirAsia and Singapore Airlines.
Such a situation does not apply in the case of Groupe ADP, which is not an airline operator.
On the other hand, the French firm is playing this cautiously. Partly that will be on account of it being aware of some of the issues that dogged foreign investors from the first Indian airports' privatisation tranche, in 2006 - firms such as Fraport, Flughafen Zürich and ACSA. Secondly, because of the regulatory aspect.
In the first phase, it will buy a 24.99% stake. The second phase, for 24.01%, is subject to regulatory approval, notably from the Reserve Bank of India, and should be concluded in the coming months. But ADP will be wary of the shifting goalposts that blighted those earlier transactions.
Either party could be negatively affected by the small print
Changes could come (for example) to the payment of earn-outs to GMR Airports consequent to it achieving specific operating metrics. They were part of the agreement with the Tata consortium but could be subject to amendment.
On the Indian side there could be fears that ADP could step back from the deal in a similar way to the way it did in Vietnam, which was its previous big focus of attention.
According to GMR Group chairman GM Rao, the partnership with ADP is in line with the group's aim to become a global airport developer and it will open newer avenues of growth.
That has been an aim of GMR for a long time, but it isn't clear what expertise GMR can bring to ADP's operations elsewhere. Possibly it is looking at the arrangement between VINCI Airports and TAV Airports (in which VINCI is an investor at a similar level) and how that appears to have been mutually beneficial, but it is a little vague.
Augustin de Romanet, chairman and CEO of ADP, thinks the deal will help the French group to build a worldwide network of airports, and that this acquisition is "a transforming position for the group in one of Asia's and the world's most dynamic and promising countries".
Well, certainly the air traffic growth is there.
Active airports for GMR Infrastructure/GMR Airports
Note: Neither Goa Mopa Airport in India (a 40-year concession) nor the New Heraklion airport in Crete (left-centre on the map) is shown, as neither are yet open.
Regarding comparative size, GMR Airports' main portfolio (Delhi, Hyderabad, Mactan-Cebu) handled a total of 102 million passengers in 2019. ADP handled 108 million passengers in Paris and 110 million passengers in airports abroad.
GMR Airports and ADP together handled a total of 336.5 million passengers, which was claimed to be the highest across the world. But that's mainly down to the two Paris airports and Delhi (2019 total: 177.8 million passengers)
It hardly adds up to a global network. While both organisations are classed as 'Major Global Investors' in the CAPA Global Airport Investors Database (GMR just), to achieve that global network accolade the two organisations would have to work hard to secure more deals from a pipeline that is hardly bulging just now.