In a letter written to Finance Minister Nirmala Sitharaman, on 31st August – the day the transaction was announced — GVK Reddy, the chairman of the Hyderabad based infrastructure conglomerate highlighted the key reason why Adani was chosen over an investor consortium of NIIF-ADIA-PSP Investments.
The letter was written as a response to the representation by the investor group.. ET in its edition dated August 25th had written that the two global investors had communicated to the government seeking a fair and transparent solution to the ongoing takeover drama surrounding the Mumbai International Airport Ltd, the crown jewel of the GVK Group.
Reddy has requested the FM to “put aside” their representation as they are not “in the best interest of MIAL.”
Sources in the know said Reddy’s letter was written to everyone copied in investor letter, including the civial aviation minister and secretary. However, it is not clear if PMO too was marked a copy.
“While we are not aware of the contents of their representation to you, the news articles reporting on this matter have concerned us,” Reddy wrote. “ I would like to represent to you the facts that are true and correct and would further like to assure you that all our actions are guided in the best interest of MIAL and Navi Mumbai International Airport (NMIAL, to protect all our stakeholder’s interest including our lenders and in accordance to the letter and spirit of each of each agreement we have signed.”
ET has reviewed the contents of the letter.
Mails to GVK, PMO and finance ministry, NIIF, did not get a response till press time.
ADIA, declined comment. PSP did not want to participate in the story.
In March 2019, two of GVK’s partners in the airport venture in MIAL, Bidvest and ACSA, had approached the company to sell their 23.5% shareholding in MIAL. As per the shareholding agreement, Reddy writes, any “shareholder has to offer a right of first refusal to the other shareholders before selling to anythird party.” In the same month, GVK exercised their ROFR but the two South African shareholders disputed the manner of exercise. The matter therefore went to the Delhi High Court and subsequently to an arbitration tribunal. The matter has multiple other proceedings on going in different jurisdictions including Supreme Court, Delhi and Mumbai High Court.
The letter goes on to say in October 2019, GVK signed a definitive agreement with ADIA, PSP and NIIF to riase Rs 7610 crore in GVK Airport Holdings Limited, the holding company for MIAL.
However, the funding was subject to fulfilment of a few agreed conditions precedent (CP) being satisfied. The acquisition of Bidvest and ACSA was one such crucial CPs for the transaction with the consortium.
In January of this year, the Arbitral Tribunal gave GVK an interim relief “by imposing an injunction” on the two shareholders of MIAL from selling their shares. This was based “on the basis of certain funds that had been deposited by the investors.” Even though the letter does not specify the amount, sources said a sum of $300 million was deposited by the investor group for 9 months.
But with Covid 19 pandemic breaking out, the aviation industry was hit badly and MIAL’s financial health deteriorated significantly thereby making its lenders very anxious. “MIAL needed an immediate fund infusion,” stated Reddy in the letter.
“Since our ability to fund was dependent on we closing our financing with investors… it became apparent that despite our best efforts, the transaction with investors as executed in October 2019 was not possible to complete in the form originally envisaged as it had CPs which required to be done before the funding. These conditions required time, whereas we required money immediately,” wrote Reddy. The investors did make an “alternate proposal” but “for various reasons could not have been accepted nor was it possible to achieve in a short period of time.” Reddy interestingly does not elaborate on this alternative plan but goes on to say, “ during this time the investors also withdrew the funds kept in escrow, which was the basis of the injunction on Bidvest and ACSA, selling to third parties.” As a result they were free to sell to third parties. The duo already had a binding share purchase agreement with Adani.
Putting the onus on the consortim, Reddy wrote: “While there is an urgent need to preserve the financial health of MIAL, provide support to NMIAL and to find a solution for our lenders, the action of investors, by withdrawing funds from the escrow had allowed Adani to proceed to acquire shares held by Bidvest/ACSA.”
Defending his stance of choosing Adani, the GVK chairman argued that time was of essence as the lenders to the holding company — HDFC Ltd, Goldman Sachs, ICICI Bank, Yes Bank — and lenders of MIAL led by SBI Bank had been “contemplating various options.” Since GVK was not in a financial position to infuse funds into the airport company, any delay would have completed wiped out “any value of its equity stakes and that of its partners.