The company is seeking to raise $200 million through a 13-year project finance loan at 1.85% over Libor. The funds are being raised as part of a $1.25 billion project to modernise and develop the Indira Gandhi International Airport in India's capital city. Debt worth $900 million has already been raised domestically.
With an expected life of 9.3 years, the loan is structured as a typical project finance loan and is currently being syndicated. Abu Dhabi Commercial Bank has reportedly already committed $15 million.
There are no direct Asian airport project financing comparables available for this deal, although Turkey has a large number of projects in the airport sector financed with similar maturities.
The deal follows the Indian government's recent airport privatisation programme, which early last year led to the modernisation of Delhi Airport being awarded to a consortium led by IndiaÆs GMR Group (and including Fraport AG Frankfurt Airport Services Worldwide and Malaysia Airports Holding Berhad). The consortium owns a 74% stake in the airport, with the remaining 26% held by the Airports Authority of India (AAI), the agency responsible for maintaining and managing IndiaÆs civil aviation infrastructure.
GMR is planning several expansion projects both domestically and internationally and will, through this deal, expand its traditional Indian bank base to a more international audience.
Similar deals are expected in the future as the government mandates more modernisation and expansion projects. ôAlthough these types of projects are not very frequent, they are part of the governmentÆs policy to develop infrastructure in India, and banks have been waiting for a cut of the pie,ö says a source.
Infrastructure financing in India has historically been problematic given the size and long gestation period of the projects, low real returns, risks related to construction and operation, as well as issues regarding the regulatory and political environment. But while project characteristics remain unchanged, ôa key difference today is the recognition of these challenges û- both on the financing and governance front û- from almost all the authorities, resulting in various initiatives being initiated and contemplated,ö says a Citi report on India released today.
There is reportedly strong demand for the loan, primarily driven by strong sponsors, well-structured project contractual agreements and robust traffic growth expectations. The Delhi airport, the second largest airport in India after Mumbai, currently records 20 million passengers a year, equating to a 25% annual growth in numbers.
In an interview with FinanceAsia last year, GMR group chairman GM Rao was optimistic about airport traffic continuing to grow citing the huge pool of human resources in the country and the fact that India is ôfast establishing itself as a knowledge management centre and back office to the worldö.
ôAirport development is an economic compulsion today,ö Rao added. The air transport sector is growing fast following deregulation and demand from growing domestic transport, travel and logistics industries.
As well as Delhi, GMR is currently involved in two other airport projects, namely Hyderabad International Airport, and Sabiha Gokcen Airport in Turkey, and is currently the only listed company in India with an airport asset in its portfolio.
GMR has interests in infrastructure (energy and transportation), agriculture (sugar) and manufacturing (ferro-alloys). Through this first offshore loan, the company will be offering foreign banks a rare chance to access a promising growth market.