GMR Airports Limited (GMRAIRPORT) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to GMR Airports Infrastructure Limited conference call to discuss the merger of GMR Airports Limited with GMR Airports Infrastructure Limited. [Operator Instructions] Please note that this conference is being recorded. We have with us today Mr. Saurabh Chawla, Executive Director, Finance and Strategy. Before we begin, I would like to state that some of the statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. Also, recording or transcribing of this call without prior permission of the management is strictly prohibited. I now hand the conference over to Mr. Saurabh Chawla for the opening remarks. Thank you, and over to you, sir.

Good morning, everybody. I welcome you to the call to update you on this landmark development and history of our company. As envisaged earlier in 2020, when we signed the agreement with Groupe ADP, it was our endeavor to not only to raise capital to strengthen our balance sheet but also to simplify the corporate structure as we go forward. Our company has undertaken this significant decision to transform GIL to a new growth phase by executing a new agreement with ADP to merge GMR Airports Limited, the existing airport platform and unlisted entity, with the listed entity, which is GMR Airports Infrastructure Limited. The merger would result in taking GMR's partnership with Groupe ADP to the next level as it will allow them to bring -- allow us to bring them at the listed company level. In addition, it will enable an earlier and full settlement of the earnouts. As you are aware, we have entered into the strategic partnership to create a world-class airport platform whereby Groupe ADP agreed to purchase 49% stake in GMR Airports Limited. At the time of the transaction, Groupe ADP had taken equity earnouts of up to 8% of GMR Airports and cash earnouts of INR 1,060 crores to GIL. This was a precursor to achieving our stated objective of creating the pure airport play and unlocking value for all the shareholders through the demerger of GMR Infra into GMR Airport Infra and GMR Power Urban Infra, which became effective from December 31, 2021. As part of the merger, with the subscription of FCCBs by Groupe ADP, GIL will be further deleveraged by repaying corporate debt and also settling most of the contingent liabilities related to GPUIL. Under the process, GIL will raise approximately EUR 331 million or about INR 2,900 crores from Groupe ADP to a 10-year 6.76% per annum simple interest coupon FCCBs due in 2033. The coupon of FCCB will be accrued until the end of the tenure. The conversion price is set at INR 43.67, which is 10% premium to the FCCB regulatory [ flow ] price under the FCCB scheme. Groupe ADP subscription to FCCB is a testimony to the strength of relationship between GMR and Groupe ADP. We believe the merger is a step in the right direction and will be value-accretive to all the shareholders. The combined expertise and resources of GMR and Groupe ADP will ensure that GIL remains at the forefront of aviation innovation. Besides redefining the strategic relationship with Groupe ADP, fresh issuance of FCCB to Groupe ADP will result in reduction of cost of capital. Going forward, an improved balance sheet will facilitate greater access to growth capital at lower cost. It has become imperative given the favorable macro dynamics for the airport sector, especially in India. As you know, post the COVID pandemic, demand for air travel has picked up substantially, which will speed up airport privatization initiatives of respective governments across the world. Merged GIL will be an improved balance sheet, will be in a much stronger position to further scale up its airport businesses by judiciously participating in profitable opportunities mainly in India, South Asia, Southeast Asia and Middle East. As the merger will lead to collapse of the corporate structure, it will enable minority shareholders of the listed company to move closer to the airport assets and cash flow, thereby eliminating the holdco subsidiary discount usually assigned by the capital markets. Simplified corporate structure, in line with the global best practices, will also result in greater financial efficiencies, thereby improving the mechanism for upstreaming the free cash and optimization of tax cost by elimination of additional corporate layers. Coming to the shareholding pattern, 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%, respectively, of the paid-up equity share capital immediately post the completion of merger. This is achieved through categorizing Groupe ADP shareholding in merged GIL in 2 instruments: ordinary equity shares and optionally convertible redeemable preference shares, which is OCRPS. Post the completion of merger, GMR Group will continue to have management control over merged GIL while Groupe ADP will be categorized as co-promoters of GIL and have commensurate Board representations. The merger scheme and the proposed transaction is subject to customary closing conditions. The scheme is subject to receipt of requisite approvals from stock exchanges, Security and Exchange Board of India, the National Company Law Tribunal or NCLT and other statutory and regulatory authorities under applicable laws and respective shareholders and creditors. The merger is expected to be completed by quarter 4 fiscal year '24 or maybe quarter 1 fiscal year '25 following the completion of all relevant approvals. Now I would like to open the forum for queries. Thank you so much.

[Operator Instructions] The first question is from the line of Mohit Kumar from DAM Capital.

Yes, and congratulations on a significant landmark deal and bringing Groupe ADP onto the listed space. My first question on the -- sir, is it possible for you to discuss the deal in number in terms of number of shares premerger and postmerger so that we get more clarity?

Premerger, postmerger, I think -- so the current share capital premerger on a fully diluted basis would be about 7.148 billion shares. Broadly, that would be the number, okay? Post, on a fully diluted basis, this number will increase to about 14,827,488,000 shares. So if you were to look at the transaction today, the GMR family owns, on a fully diluted basis, about 49.73% shares as on date. And this assumes that [ GAL ] is an equity instrument because they're well into money. So they own 49.73% on a fully diluted basis. Public has shareholding of about 34.7% on a fully diluted basis. And as we go forward, the shareholding of the promoter family will guide you to about 25.7% -- or, sorry, will guide you to 33.7%. ADP shares in GIL will go to about 32.3% and public, inclusive of GIL, assuming GIL is fully completed, will be about 34%.

Understood, sir. I'll get the clarity of -- maybe offline. Sir, secondly, sir, the -- can you discuss the OCRPS, actually held by Groupe ADP? What is the quantum [ ROIC ] amount?

So about 18.8% on a fully diluted basis would be there, what we call allocation to the OCRPS, and they will have about [ 24.7% ] on a fully diluted basis, would be the paid-up capital -- the share in the paid-up capital. So it's important that I say on a fully diluted basis because otherwise, it's confusing. You have to look at on a like-to-like basis.

And is there any -- what are the conditions or conversion of this OCRPS?

So there's -- so the whole idea of OCRPS is to ensure that there is equitable partnership between the 2 partners. So they recognize the fact that GMR strength in the management of airports, development of airports across Asia. And we are very comfortable to the fact that GMR always has a 51% stake of whatever the equity capital is, and they have 49%. So based on a fully diluted basis, they have kept that as a threshold, and the balance is what has been imputed as the OCRPS. It's a 20-year instrument, has a very meager 0.001% coupon. And it has an economic interest rate. There is a dividend. If it is declared anytime in the future, they will have a participation in the [indiscernible]. But other than that, they do not have any working rights. OCRPS will not have voting rights. So it's a very significant, honestly speaking, a move by ADP, again reposing their faith and strength in the GMR management, GMR family as we go forward. It's very, very unlikely that any equity partner comes where it allows the other partner to always be in majority. And also management control, so I mean one is the equity ownership, and the other one is management control. So GMR family will be continuously in management control as it goes forward, so the 20 years.

The next question is from the line of Avadhooot Joshi from Newberry Capitals.

Just 2 questions. First of all, the FCCB, when we will get this money.

So we have to, of course, apply to RBI and the stock exchanges for their approval. This process will begin as we speak right now. In our opinion, it should take about 2-odd weeks to get the requisite approval of both the agencies, RBI and stock exchange, post which is when we should issue -- we should be able to issue the instruments to ADP and get the money.

Okay, okay. Understood. And what's the current debt and its contingent liabilities and how much it will go down after this FCCB money [indiscernible]?

So primarily, the money that is being raised is to deleverage the GIL balance sheet -- GIL corporate balance sheet. So as you would know that, we have about, I think, INR 1,900 crores, INR 2,000 crores plus [ take some ] accrued interest. So I'm assuming the balance period is about INR 2,200-odd crores would be the corporate debt left toward in GIL. So the primary purpose is to raise this FCCB to pay down this high cost of debt. And that facilitates the reverse merger as we go forward. The balance money is that for GIL to best utilize to remove some of the credit enhancements that had been given in -- when GIL was a merged entity. It will facilitate to settle many of those. ADP has done their -- have done their dividends, and we feel comfortable of, for example, some of the continuing credit enhancements that are there. We are comfortable with that, and a number of about INR 250-odd crores will be [ left ] with GIL to facilitate this process.

And lastly, this earnout number, which was earlier INR 1,060 crores, and now it has been mentioned, the INR 550 crores. Why there is a difference between these 2 numbers? What has changed in between?

So that is the settlement. The settlement is that 50% of equity assets and 50% of cash assets. That is the settlement as we have agreed with them. We are not waiting until completion of fiscal year '25 to test these baskets. We have accelerated that process because the opportunities, as we speak, are immense, and it's important that we bring ADP at the listco level. We settled these budgets, raised capital, and with a very strong balance sheet, we are able to then basically create the capacity in the balance sheet to look at new opportunities, whether in India or across Asia. That is the strategy behind an accelerated settlement of both equity and cash assets.

Okay. Are there any residual amounts remaining other than this?

No, no. [indiscernible] the whole earn-out will be fully settled. So 50% of equity now and 50% of cash now. So this is fully settled.

The next question is from the line of Gautam from Deutsche Bank.

I guess if you could just -- the first question I had was if you could just walk us through the sequence in terms of, I guess, first, you have the earnout -- you have the [ earnout, I think, number ]. Then you have the actual, I guess, corporate reorganization. And finally, the access to the FCCB. If I could just get a sense of the overall overarching time line. You mentioned was Q4 '24, Q1 '25. If you could just break down the time lines for these. And the follow-on question I had was in terms of the settlement of the contingent debt. If you could just shed a light in terms of -- there is still a huge amount of, I guess, in [indiscernible] corporate guarantee given by the company as per the '22 annual report. So I just wanted to get a sense among all of the ones listed there, if there is something that would [indiscernible] or not.

So the sequencing would be -- of course, the first sequence was to settle the [ tranches ] and both equity and the cash structures, which we have done right now. We have agreed to -- we have signed the settlement agreement. And as we go forward, a few things we'll be working in [indiscernible]. The accelerated process will be on getting the approval for the FCCB issuance. So as I highlighted earlier, we expect that we should have the RBI and stock exchange approval in the next 2-odd weeks, and the FCCBs will be subscribed to. The second step is that after that is we will file a scheme of merger with the stock exchanges for their approval. We will go through it and in consultation with various stakeholders, including SEBI. They will come back with their approval process. We -- given our previous experience of demerger, it takes about, I would say, 60 to 90 days. It's difficult to predict because there are 2 regulators that are involved. Between 60 to 90 days in which this approval should be in place. The third step would be once that approval is in place, we will file with the NCLT. And this filing, the NCLT will, of course, go through their process. They will convene a meeting of the shareholders, meeting of the secured creditors and other creditors. So they will convene those meetings under their [indiscernible] and seek those approvals. We expect that to happen between the third month to, let's say, about the ninth month, and we expect that this whole merger process approval from NCLT, including most likely the ROC filing post the receipt of the NCLT approval, should take, I would say, 9 months, if not 9, maybe 12 months. I think between 9 to 12 months, we should have all those things in place.

Actually, just if you would allow me, I have a brief clarification there. Based on the sequence, it actually sounds like the FCCB event will occur before the merger. Is there a contingency on that FCCB [indiscernible] the merger? Or is that -- or should we see that as an independent length?

No. So FCCB has its own time line. There are regulatory aspects in FCCB. So hence, we -- it automatically gets done prior to the reverse merger scheme filing. So there is a 15-day window in which you have to get the approval after the Board approval. So that follows that process. There is no hard and fast contingency associated with -- there's no rush in any form for us to do that. But the arrangement is such that it gets done ahead of time. And this has no linkage with the merger scheme. So this is a part of the overall settlement, settlement of the equity and cash assets, infusion of FCCB money. And of course, so many of these things will happen in [indiscernible].

And just if you could just elaborate on the second question I had initially on the settlement of the debt. I know you mentioned about INR 2,200 crores will effectively go to GIL's [indiscernible]. I just want to understand on the remaining -- if you assume it to be INR 3,400-odd crores, how do you see that the industry-dependent contingent liability, sir, because I think the annual record had about 6,800-odd number again for standing guarantees?

So there are many initiatives that [indiscernible] itself is taking, including divestment of many of its assets, divestment of equity in many of its projects. So I really can't comment on 6,000 number as on date, and that number has further reduced. But the important aspect is that this about INR 1,250-odd crores will be used to remove these credit enhancements that were given. I would like to again point out over there that the first call for those debt items are the entities which have borrowed the money. There are assets underlying those. And hence, we were only credit enhancements in nature, but it allows us the flexibility to settle it in an expeditious manner. Even in the energy side of the business and the -- in the highway side of the business, EPC side of the business, as you are aware, there is a lot of opportunities which are coming by, and it is important that we settle many of those liabilities in an expeditious manner, which will just facilitate that process. Ultimately, [ GPUIL ] has to meet its own obligations.

[Operator Instructions] The next question is from the line of N. Jayakumar from Prime Securities.

Saurabh, congratulations. Am I audible?

Yes, Jake. You're audible, yes.

Yes. So we -- hearty congratulations on putting this together. This has been obviously work of maybe many almost 2 years now, 2, 2.5 years. I think the impact of what has been created in terms of us probably being the second largest combined airport operators in the world, I think which we put -- I think that needs to be the positioning of the company. And even within that [indiscernible] in terms of the combination, [indiscernible] and a combination of both retail, real estate and airports. So as a continuing kind of thing, are you looking to make this a pure-play company over a period of time and demerge out retail and real estate as well? That's one, I know -- I think more futuristic rather than in terms of plans right now. And number two, in terms of just the market cap post August will be close to about INR 50,000 crores. That is the context of the second largest airport operator in the world with whole bunch of real estate assets to harness plus retail income flows. I think there may be a need for further simplification over a period of time.

So Jake, your point is noted. Unfortunately, I live in a regulatory environment, which is very constraining. So either being U.S. or Australia, we would have surely embarked on that process to make it just your -- and I would just categorize that as aero income play and spin-off the non-aero side of the businesses. Unfortunately, because the business is done at the concession level, it becomes very much difficult. Having said that, our plans, and I think we have highlighted this in our earlier calls also, that some of our non-aero businesses, we are bringing it to the platform level. So now after the reverse merger is completed, you will see GIL doing the non-aero business, competing with other concessionaires, both in the GMR Airports and in non-GMR Airports. So we would be getting into the duty-free business. We will be getting into the aero business because these are adjacencies to our core business of the aero side of it. The ability to spin them off once we have scaled those businesses is still about, let's say, 5 to 7 years down the road. But you're absolutely right. These are consumer businesses and have to be recognized as that. The fact that we are bringing it to the platform level is to derive a higher multiplier to our valuation, and that process is already on its way. We have the industrial partnership with Groupe ADP. They will bring their expertise. They are already adding value on the retail side of it. So if you go to CDG, which is the Charles de Gaulle airport in Paris, how they've rolled out the retail platform for their consumers is something which excites us, and we will bring those also not only in the GMR Airports for the learnings to other airports that we will build going forward. So this part is exactly what you're talking about, but it is still a journey. It's a journey which will take time and maybe get consummated maybe 5 to 7 years from down the road. So this, we have highlighted in some form or the other in our earlier analyst calls. You're absolutely right.

The next question is from the line of Pritesh Jani from Subhkam Ventures.

I am just keen to know our net debt position for FY '23 on a consolidated basis and its average cost of borrowing.

So honestly, I think we'll have to wait until end of April for our financials to get completed. We are right in the middle of March. So I think let's wait until that point of time. We'll have Q4 results. You will have a net debt number. But I have already indicated on the corporate debt of about 1,900 plus accrued interest on that, which is about -- broadly speaking, about INR 2,100 crores to INR 2,200 crores.

Okay. Okay. And it's average cost should be?

On the corporate debt?

Yes.

So on the corporate debt, the cost today on the books would be -- it's a mixed bag, but let's say, about 15% to -- 15-odd percent. [indiscernible].

The next question is from the line of Mohit Kumar from DAM Capital.

My question is on the electricity, which is line with the KIA. Has there been any discussion with that -- with the deal? And do we expect this conversation to happen in the near future?

So honestly speaking, I think Kuwait Investment Authority has been the most flexible and friendly investor with us. They have been there for now almost 4 years. And the best part of -- 6 years, and the best part is that they are well into money. We are always in touch with them. They have been -- they have facilitated this process. And we believe that as we go forward, there will be far more forthcoming in adding value to the business where they are participating in some form or the other. Specifically on the conversion of the FCCBs, we have not had a conversation yet. They have the right to convert, and so do we have a right to force conversion. But like -- as friendly investors, we will have that conversation and take appropriate actions once there is [ convergence of mind ]. So -- but from our perspective, we always view on the KIA investment as an equity because it's so deep into money.

[Operator Instructions] The next question is from the line of Pinkesh Jain from Way2Wealth.

[indiscernible]

Your voice is not clear. I'm sorry. Can you please repeat your question?

Am I audible?

Yes. That is better, yes.

I was -- I wanted to know about this OCRPS. So what is the conversion option in the hands of Groupe ADP?

Yes, the conversion option is with the hands of ADP. It is a 20-year instrument. And they can convert if there is a certain milestone. So the whole -- let me put it, the discipline behind the OCRPS is that if GMR increases its shareholding over the next 5 to 10 years in that period of time, they will then, in order to match that 51:49 proportionate between the 2, they will convert to that extent. Other than that, they will continue to hold it till the 20th -- 20-year maturity. That's the broad -- that's a broad understanding.

And sir, [indiscernible].

Sorry to interrupt you, Mr. Jain. But we are unable to hear you. Your voice is sounding muffled.

Hello? Am I audible?

Yes, please go ahead.

Secondly, sir, this FCCB conversion. While the conversion price and everything has been laid out, are there any milestones upon which it is contingent upon where the conversion price can be changed in terms of business performance or something like that?

No, no, no. It is -- there is no other milestones for change in price as if it is at a premium to the current price. And you have to adhere to the ECB guidelines of RBI. Even the base price is governed by the formula. So there's not much leeway available as far as FCCB is concerned.

Yes, sir. I'm referring to the Groupe ADP press release wherein they have mentioned that upon the FCCB conversion, the stake [indiscernible] another 5% to 8%. I've understood the 5% at the lowest term, but the higher 8% I was not able to understand. So if you can help me with that.

So that is because the interest is accrued and interest has not been paid in cash. Whenever it [ contorts ] at that particular point of time, if it could be between 5% to 8%, and that's an economic interest, which is [indiscernible] from ADP.

Okay. So are [ you stating ] that we are not attributing this 6.7% coupon on the [indiscernible]?

No, we are not. So it's -- honestly speaking, if you do the math, so it will just come to about 6% IRR.

[Operator Instructions] As there are no further questions, I would now like to hand the floor over to the management for closing comments.

Yes. Thank you for this call. We are available off-line to answer any specific queries that you may have. So you know how to get in touch. Amit and Vishal are available. And if you want to have a call with you, I can also join in on those calls. But again, I would like to summarize that this is an extremely important step for GMR-ADP partnership. Going forward, once the reverse merger is approved, 100% of cash value will get reflected in June. GIL's market cap on today's term will be in excess of INR 50,000-odd crores. GMR family will be in management control. There will always be in a proportion of 51-49 with ADP. And ADP, of course, will come at the listco level, and there's not much change in the shareholder agreement with ADP. So as it has continued over the last 2 years, it will continue as we go forward. So it's a very, very meaningful demonstration of our deep partnership and the strength of our partnership. And hopefully, I think we can now move ahead and try to put ourselves in other jurisdictions where opportunities are likely to emerge. Thank you so much.

Thank you. On behalf of GMR Airports Infrastructure Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.