GMR consortium wins Philippine airport project

Bangalore: The Bangalore-headquartered GMR Infrastructure has returned to the global stage, with its 40:60 joint venture winning a contract to upgrade and modernise the Philippines’ Mactan-Cebu international airport. The consortium of GMR Infra and its partner Megawide Construction, a publicly-held Philippine firm, will make an upfront concession payment of $325 million and invest $375 million over five years in building a new terminal and upgrading the existing one.

The Indian company had made a hasty retreat from many of its global operations over the past 18 months.

At present, the Mactan-Cebu international airport has a capacity of handling seven million passengers a year. The plan is to double this to 14 million in the next five years. According to GMR, the airport reported $35 million in revenue last financial year.

The consortium’s concession payment will have to be made within 20 days. Senior GMR officials indicated to Business Standard that this would be done in a 70:30 debt-equity ratio. And, almost the same formula would be followed for the construction cost as well. The officials also said GMR’s total equity contribution would be about $50 million and “we should be able to manage to invest with the existing structure”.

According to a statement issued by GMR, the Department of Transportation and Communications (DOTC), Republic of the Philippines, has formally awarded the Mactan-Cebu International Airport rehabilitation, expansion and operation project to the GMR-Megawide Consortium for a 25-year concession period. In the international competitive bidding process, GMR-Megawide emerged the highest bidder, offering a premium of 14.4 billion Philippine Pesos (about $320 million).

According to Reuters, the Philippines’ largest conglomerates like SM Investments Corp and San Miguel Corp were among the rivals the GMR-Megawide consortium pipped for the contract.

A consortium of Metro Pacific Investments Corp and JG Summit Holdings Corp (with partner Aeroports de Lyon), First Philippine Holdings Corp and Wellington International Airport Ltd, and Ayala Corp, Aboitiz Equity Ventures Inc and Houston Airport System had also bid for the project.

GMR Infra Chairman G M Rao said: “We are delighted to be awarded the Mactan-Cebu international airport project. We firmly believe the GMR-Megawide consortium has the right credentials and capabilities to undertake this project and deliver an airport that Cebuanos and Filipinos will be proud of.”

GMR-Megawide plans to develop the Mactan-Cebu International Airport into a regional hub in the Philippines, creating passenger & cargo traffic growth, bringing jobs for the local community, giving a boost to the tourism traffic and creating multiplier economic benefits for the region.

GMR added this airport saw 65 per cent of its traffic coming from tourism and the rest from business travellers. “Cebu is emerging as a strong destination for BPO (business process outsourcing) services and this should fuel the growth of the airport much further,” GMR officials told Business Standard.

Bagging this contract suggests GMR’s “asset light, asset right” strategy, which it adopted nearly two years ago, might indeed have borne fruit. The company had gone for this strategy after it became highly leveraged (as much as 3.5 times) with a debt of Rs 40,000 crore for projects across its power station, airport and highway portfolios. In the past 18 months, GMR has generated close to Rs 4,000 crore free cash, besides reducing project debt by as much as Rs 10,000 crore. It will use future divestments to reduce corporate debt (close to Rs 5,000 crore at present).

The airports vertical, which accounts for about 60 per cent of the company’s overall revenue of close to Rs 10,000 crore a year, is the only profitable vertical for GMR. Implementing the increased charges at the New Delhi international airport, besides revenues from the Hyderabad airport, has been among the main drivers for the company.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.