GVK group to take over BIAL

After acquiring 29 per cent stake in BIAL’s equity capital, the Hyderabad-based power and infrastructure business house, GVK group, is all set to take the management control of the company that runs the country’s third largest airport in terms of passenger traffic.

In a telephonic interview with Deccan Herald from Mumbai, Sanjay Reddy, Vice Chairman, GVK Power and Infrastructure Ltd—the holding company for GVK group’s operations in power and infrastructure—said GVK bought BIAL stake with the intention of running the airport. “We are not a passive investor. We will take an active part in the day-to-day running of BIAL,” said Reddy.

The GVK group, which runs the Mumbai airport with its 37 per cent holding in the company (a South African consortium also owns equal stake), first bought 12 per cent stake in BIAL in November this year from Zurich Airport, an original promoter, for Rs 484 crore at Rs 105 per share. GVK struck again when it picked up the entire 17 per cent promoters’ stake of Larsen and Toubro at the same price, taking the total holding to 29 per cent at an investment of Rs 1,170 crore.

The management change-over of BIAL is expected to be a friendly affair as all partners have agreed to it, Reddy said.  GVK has already initiated discussions with other investors — Siemens Project Ventures of Germany (40 per cent stake), Airport Authority of India (13 per cent), Karnataka Government (13 per cent) and Zurich Airport (5 per cent). “First we will get representation on the BIAL board by the end of January 2010. Then in the next six months or so we will induct officials in key management positions, including the chief executive officer” explained Reddy.
Analysts feel that the transformation will not hit any air pocket because the largest stakeholder, Siemens, is a passive investor, and it never gets involved in the running of airports.

From the day it started operations in May 2008, BIAL was run by Zurich Airport, which now holds only 5 per cent stake. “GVK is an Indian group with the experience of running the country’s largest airport in Mumbai. It should be a natural choice for BIAL,” said an aviation industry expert.

Moreover, according to Reddy, GVK will up its stake in BIAL to minimum 51 per cent as and when the existing partners are ready to sell their stake. To this effect, it has entered into an agreement with all private partners for a “first right of refusal” for stake sale.

Zurich may offer GVK its remaining 5 per cent stake that will be free from lock-in this year. Siemens will be free to sell 14 per cent of its 40 per cent stake in June 2011 after the three-year lock-in and the balance after seven years from the day the operation began in BIAL.

GVK’s entry into BIAL happened at a time when airport business is looking up with increased passenger traffic. In October 2009, passenger traffic in major Indian airports was up 25 per cent and in November it was up 20 per cent. The added significance is that like its business rival, the GMR group, which runs the Hyderabad and Delhi airports, GVK will also have two airports under its fold.