How Adani Will Become India’s Largest Private Airport Operator

After a series of bitter legal disputes involving entities located in different parts of the world, such as South Africa, Mauritius, Abu Dhabi and Canada and after search-and-seizure raids were conducted on the corporate group that operates India’s second-largest airport in Mumbai, on the last day of August, the Hyderabad-based GVK group, headed by G V K Reddy, capitulated and decided to “cooperate” with the Adani group to enable the latter to acquire controlling interest in companies operating two airports in the country’s commercial capital, Mumbai, including a new one coming up in Navi Mumbai.

Having established a commanding presence in running seaports along India’s west coast and east coast, the Adani group, led by the country’s second-richest man, Gautam Adani––whose proximity to Prime Minister Narendra Modi is common knowledge––is all set to become the largest private operator of airports by overtaking another Hyderabad-headquartered conglomerate, the GMR group, that currently manages the largest Indian airport in the national capital of Delhi besides the airport at Hyderabad, the capital of Telangana.

Time will tell how smooth the path ahead will be for Adani.

From having no experience in running and managing airports, in barely a couple of years, the Ahmedabad (Gujarat)-based Adani conglomerate is poised to become the biggest player in this important infrastructure sector. How this has been achieved is an amazing story. Shorn of legalese, this is a story of how the regulatory environment is tweaked to facilitate the rise of crony capitalists––sorry, oligarchs––with generous assistance from law-enforcing agencies to expedite processes which ensure that competition is ruthlessly suppressed.

Despite unresolved legal disputes and opposition from the Kerala government as well as from unions of employees of the public sector Airports Authority of India (AAI), the Adani group will soon be controlling the operations of eight airports across the country. Besides the airport at Mumbai and the one coming up in Navi Mumbai (in Maharashtra), the group has already won bids to run the airports at Lucknow (Uttar Pradesh), Jaipur (Rajasthan), Guwahati (Assam), Ahmedabad (Gujarat), Thiruvananthapuram (Kerala) and Mangalore (Karnataka), that had been built by the AAI.

The Narendra Modi government seems to be in a tearing hurry to privatise all segments of the economy that were publicly owned. In the process, a particular business group has got an opportunity to dominate a key infrastructure sector at a time when the country’s economy is shrinking. Among the worst hit sectors in the current recession is the aviation sector.

Having bought time on account of the COVID-19 crisis to take over three of the already allotted six airports, the Adani group has successfully acquired a majority stake in Mumbai International Airport Limited (MIAL) from the GVK group. The tale of how it reached this enviable position began less than two and a half years ago.

Breakneck Speed to Take Off

In April 2018, the Prime Minister’s Office (PMO) had “directed” the Department of Economic Affairs (DEA) in the Ministry of Finance and NITI Aayog to prepare a “model mechanism” for removing six airports out of AAI’s control and for handing their operations over to private players. A number of sweeteners were added.

The private operators selected would earn by developing real estate on land located in close proximity to the airports. Unlike the revenue sharing model adopted for the privatisation of the two largest airports, Delhi and Mumbai, where the concessionaires shared 45.99% and 38.7%, respectively, of the revenues earned with the AAI, the government chose to introduce a new “per passenger fee” revenue model. On top of these sweeteners, the lease period was extended by 20 years from 30 years for Delhi and Mumbai to 50 years for the other airports that were privatised.

A decade earlier, in 2008, in the wake of the privatisation of the Delhi and Mumbai airports, and in order to avoid conflicts of interest between the private operators and the AAI (the owner and regulator of the airports), the government set up an independent statutory authority called the Airports Economic Regulatory Authority (AERA) to fix tariffs, expenditure, fees and other charges for “major” airports. A major airport was defined as one that had an annual passenger volume of 1.5 million or more.

During the monsoon session of Parliament in 2018, the Modi government tried to amend the AERA Act, 2008, through a Bill that proposed to divest AERA of its powers to determine tariffs and airport development fees, in cases where these were a part of the bid documents on the basis of which private players were awarded the rights to operate airports. Importantly, the government sought to change the definition of a major airport by increasing the annual passenger volume threshold from 1.5 million to 3.5 million. The government failed to pass the Bill.

It nevertheless invited bids from private players for upgradation and the operation of six airports (Ahmedabad, Lucknow, Jaipur, Guwahati, Thiruvananthapuram and Mangalore) on December 14, 2018. To circumvent the regulatory authority’s powers to determine such charges, private bidders were asked to quote a “per passenger fee” on the basis of which their bids would be evaluated.

The tender for privatisation of these six airports was processed at breakneck speed. In February 2019, the government announced that the Adani group, which had no prior experience in the development or operation of airports, had won all six bids. How the government twisted rules and ignored important recommendations from officials in the DEA and NITI Aayog to benefit the Adani group have been detailed in this article published by NewsClick on March 27, 2019.

In a meeting of the Union Cabinet on July 4 that year, the Modi government approved the bids and handed over charge of operating three out of the six airports (Ahmedabad, Lucknow and Mangalore) to the Adani group for a period of 50 years. 

A month later, on August 2, Parliament passed the Bill to amend the powers of AERA. Civil Aviation Minister Hardeep Puri said out of the 33 airports that were then under AAI, 16 airports would be regulated by AERA while the rest would continue to be regulated by the government––17 airports, including all the profit-making airports, were out of the regulatory ambit of AERA and brought under the direct control of the Ministry of Civil Aviation.

Airports’ Privatisation by UPA Government

Before the Congress-led United Progressive Alliance (UPA) government decided to hand over the development and operations of the Delhi and Mumbai airports to private companies, there had been a major controversy. It was claimed that the Civil Aviation Ministry (then headed by Praful Patel) had attempted to tailor the bid conditions to suit the undivided Reliance group.

In January 2006, one of the writers of this article had pointed out how the intervention by a civil servant in the Planning Commission, Gajendra Haldea, had thwarted an attempt to favour a company headed by Anil Ambani. Eventually, the GMR group won the bid to operate Delhi airport, while the GVK group won the bid for Mumbai. At that time it was decided that the same group would not get to operate both airports although one bid was lower, a policy that was later given a go-by to benefit Adani.

The GVK group signed a consortium agreement with AAI, the Airports Company of South Africa (ACSA) and its associate based in the tax haven of Mauritius, Bid Services Division (Mauritius) Limited (Bidvest) to form Mumbai International Airport Limited (MIAL) on April 2, 2006. GVK was the single largest shareholder with a 37% stake, Bidvest had 27%, ACSA 10% and AAI 26%.

The shareholders’ agreement (SHA) and the articles of association (AoA) of MIAL, signed by representatives of the four entities two days later, incorporated a clause that if any of the private participants contemplated transfer, directly or indirectly, of any or all of its equity shares or voting rights in the company, the other members of the consortium would exercise the “right of first refusal” (ROFR) to buy the shares.

In 2011, Bidvest sold 50% of its shares to GVK, thereby reducing its holding in MIAL to 13.5%, thus helping GVK consolidate its holding in the company to a majority of 50.5%. On January 26 that year, Bidvest gave a notice of 30 days to the three other members of the consortium about its plan to exit from MIAL for a consideration of Rs1,248.75 crore (or Rs77.083 per share).

Adani Enters the Fray

Five days later, on January 31, the Economic Times reported that Bidvest had a ready buyer for its 13.5% stake in MIAL and that the notice was issued to other members of the consortium to counter the offer under the ROFR, as laid out in the SHA. Business Standard reported that Bidvest had decided to sell its stake in MIAL when the Adani group approached it with an offer the same month.

On February 19, GVK wrote to Bidvest contending that the offer notice was defective and invalid as it did not comply with the SHA. Three days later, the financial press mentioned that the Adani group had made a formal offer through Adani Properties Private Limited to pick up a 23.5% stake together held by Bidvest and ACSA.

According to the Adani proposal, the valuation of MIAL was around Rs 9,500 crore. That day, Adani group entities signed a share purchase agreement (SPA) with ACSA, and GVK informed the Bombay Stock Exchange (BSE) that GVK Airport Holdings Limited (GVKAHL), a step-down subsidiary of GVK Power and Infrastructure Limited (GVKPIL), would be acquiring Bidvest’s 13.5% stake in MIAL at Rs 77 per share to increase its stake to 64%.

On March 4, 2019, Bidvest sent a draft SPA to GVK stating that the buyer would be given 30 days to complete the transaction. The next day, Bidvest signed a conditional SPA with the Adani group. Bidvest stated that the transaction would be completed only if the following three pre-conditions were met: 

1.      If the three members of the consortium did not exercise their rights to acquire Bidvest’s shares pursuant to the ROFR;

2.      that the ROFR would stand waived; and

3.      if despite exercising the ROFR, the shareholder concerned had not completed the purchase within the time stipulated in the SHA and the AoA of MIAL.

On March 7, AAI wrote to Bidvest and GVK to adhere to the terms of the SHA and complete the transaction within 30 days. GVK replied that it had exercised its ROFR. A week later, Bidvest wrote to GVK informing it that if the SPA is not executed within 30 days from March 4, it had the right to offer its shares to AAI as per the terms of the SHA. And if AAI was not interested, Bidvest could offer its shares to any other buyer of its choice. 

GVK suggested changes to the SPA and on March 16 asked Bidvest to execute the revised agreement. Bidvest refused to accept the changes in the SPA and specified that April 4 would be the last date (or “long stop date”) for completion of the transaction. MIAL informed the BSE on March 22 that it had exercised its right under ROFR and would be acquiring ACSA’s 10% stake in the company at Rs 77 per share to increase its stake to 74%. 

On March 26, GVK sent the signed SPA to Bidvest asking it to counter-sign the document and return it. In a separate e-mail to Bidvest, GVK pointed out that neither the SHA nor the AoA of MIAL mentioned a “long stop date” and that certain clauses in the SPA contradicted related clauses in MIAL’s SHA and AoA.

The next day, Bidvest wrote to the lenders of MIAL, that is, the country’s largest bank, the State Bank of India (SBI) and its affiliate SBICAP Trustee Company Limited, seeking approval for the proposed transaction. The SBI immediately responded that the request should come from MIAL and two months’ notice must be given to the lenders for their consideration.

On March 29, Bidvest wrote to MIAL requesting it to seek the approval of lenders for its proposed transaction with GVK. MIAL then asked Bidvest to submit a formal request with relevant documents, including a copy of the “term sheet” to consider the request under the operation, management and development agreement (OMDA) that MIAL had signed with the AAI in 2006.

(A term sheet is typically a short bullet-pointed document that outlines the material terms and conditions of a business agreement and after it is “executed,” guides lawyers to prepare a “final” agreement.)

GVK later alleged that Bidvest neither responded to the letters from MIAL nor provided supporting documents required to seek the necessary approvals.

Legal Tussles Get Convoluted

On April 2, GVK filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996, against Bidvest, ACSA and AAI in the Delhi High Court, seeking an injunction to block Bidvest from selling its stake in MIAL to a third party. The media speculated that that this was an attempt by GVK to pre-empt Adani from taking over MIAL.

On April 3, 2019, Bidvest again wrote to the lenders seeking their approval for the sale of its shares to GVK. On April 8, Economic Times reported that GVK is negotiating with the Abu Dhabi Investment Authority (ADIA) and the National Investment and Infrastructure Fund (NIIF), a sovereign wealth fund in which the Indian government holds 49% stake, for funding worth Rs 6,500 crore “in its flagship airport in Mumbai to counter advances by Gautam Adani to buy into it.”

Lawyers representing the GVK group informed the Delhi High Court on April 11 that attempts were being made to arrive at an amicable settlement. The court asked Bidvest to file its reply to GVK’s petition within a week and adjourned the case to April 29. On April 18, GVK informed the BSE that it had signed a term sheet and exclusivity agreement with ADIA and NIIF for investment in new shares of GVK Airport Holdings Limited amounting to 49% stake in the company. 

On April 25, GVK invoked the arbitration clause of the SHA against Bidvest. The contending parties informed the Delhi High Court on April 29 that they had arrived at a settlement and requested the court to dispose of the petition. Nearly two weeks later, on May 11, Bidvest requested the court to direct GVK to prove that it had the Rs 1,248.75 crore needed to acquire Bidvest’s 13.5% stake in MIAL. 

On May 8, the court again asked the parties whether they were really ready for a settlement. The arguments made by the lawyers threw more light on the tussle between GVK and Bidvest. According to Bidvest, GVK through MIAL had to submit a request letter to AAI, another request letter to the lenders through the lead bank, the SBI, and the security trustees, as well as the term sheet.

It transpired during the court proceedings that MIAL had not taken permission from the lenders for the transaction. Bidvest alleged that GVK never demonstrated its financial ability to pay within five days from the date of obtaining approvals from the AAI and that it did not believe that GVK would be able to pay such a large amount. If the purchaser of the shares is a third party, the time-frame for the transaction should be 90 days and not 30 days, it was argued, since more regulatory approvals were needed.

Interestingly, AAI supported Bidvest’s stand in court.

On July 1, the Delhi High Court dismissed GVK’s petition. In a 68-page order, the court noted that GVK “...has not exhibited that it possesses adequate financial capacity to complete the acquisition of the shares,” adding: “The opinion expressed by the Court is only a prima facie view. Needless to say that the same shall not be binding on the Arbitral Tribunal and contentions of the parties and merits of the claims and/or counterclaims shall be examined uninfluenced by the observations made in this judgment.”

Immediately after dismissal of the case, Bidvest issued a notice to AAI under the ROFR clause for the sale of its 13.5% stake in MIAL. In mid-July, the Public Sector Pension Investment Board (PSP Investments) of Canada joined hands with ADIA and NIIF to infuse Rs 6,000 crore (in equity and debt) to acquire 49% of the GVK group’s airports company. The valuation worked out around Rs 2,500 crore more or 27% higher than Adani’s valuation of the company at Rs 9,500 crore.

Meanwhile, ACSA, which was not a party to the arbitration, gave GVK time till September 30 to pay for its 10% stake valued at Rs 950 crore. On July 15, GVK issued a clarification to BSE stating that media speculation about more investors being willing to invest in the group were “market rumours.”

On July 26, the Competition Commission of India (CCI) approved GVK acquiring ACSA’s 10% stake in MIAL.

On September 4, the Adani group dragged Bidvest and other shareholders of MIAL to the Bombay High Court. Interestingly, the Ministry of Civil Aviation was added as a party. Adani argued that since the “long stop date” set by Bidvest to GVK expired on April 4, GVK had lost its right to acquire the shares, and that GVK’s attempt at raising capital in GVKPIL, GVKADL and GVKAHL through ADIA and NIIF was actually a transfer of shares prohibited by the SPA.

“We have a binding agreement with Bidvest which is sacrosanct and we are seeking the court’s injunction to the minority investor of MIAL to transfer its shares to any third party. Under the agreement, they (Bidvest) have agreed to sell its stake for Rs 1,235 crore to us,” submitted Adani’s counsel.

In the second week of September, reports appeared in various publications claiming that AAI might be purchasing the shares of both Bidvest and ACSA. AAI then clarified that it is not interested in using its ROFR option in MIAL and has no plan to purchase any shares from the two sellers.

Even as the dispute was being argued in the Bombay High Court, the Arbitral Tribunal in Delhi passed an interim order on September 15, 2019, under Section 17 of the Arbitration and Conciliation Act, 1996, asking GVK to deposit the purchase price of Rs 1,248.75 crore in an interest-bearing, non-lien, escrow account in SBI on or before October 31. The order added that if GVK failed to deposit the amount by the specified date, Bidvest would be free to sell its stake in MIAL to Adani. However, if the money is indeed deposited, Bidvest should not go ahead with the sale transaction till November 24, the next date of hearing.

On October 1, lawyers for the Adani group informed the Bombay High Court that its SPA with Bidvest had been extended till November 7. A few days later, Adani moved an interim application requesting the court to direct Bidvest to write to GVKAHL to stop the issuance of shares or transfer of shares to GVKADL and GVKPIL without giving a ROFR notice to Bidvest, ACSA and AAI, and that failure to do so should be considered as indirect transfer of MIAL shares to third parties. Adani further sought  “a direction to Bidvest to give 48 hours notice before taking any steps in relation to transfer of shares to GVK or its affiliates in the event GVK deposits Rs 1,248.75 crore…”

Justice A K Menon clarified that the court cannot issue any such direction and set November 5 as the next date of hearing.

Inquiry By Ministry of Corporate Affairs

On October 15, it was reported that in early-September, the Ministry of Corporate Affairs (MCA) had served notices to 11 companies in the GVK group, including MIAL, based on a complaint made by a “whistle-blower.” GVK officially confirmed to BSE that MIAL had indeed received a notice under Section 206(4) of the Companies Act from the MCA but that other GVK group companies had not received such notices––Section 206(4) pertains to an “inquiry” by the Registrar of Companies (RoC) into the financial results submitted by a company to find out if there has been misappropriation of funds. GVK also denied media reports about a complaint by a “whistle-blower.”

Nothing apparently came out of the inquiry by the RoC. But the legal tussles among the different stakeholders in MIAL continued.

On October 27, in a filing to BSE, GVK announced that GVKAHL and GVKADL had entered into a “definitive agreement” with ADIA, PSP Investments and NIIF for an investment of Rs 7,614 crore in GVKAHL. According to the terms of the agreement, upon completion of the transaction, GVKAHL would have four shareholders––GVKADL, ADIA, PSP Investments and NIIF -- with the first one holding 20.9% stake and the other three, 26.366% each. The agreement stated: “Proceeds from the Transaction will be used by GVK to primarily retire debt obligations of its holding companies significantly and fund the purchase of additional shares in MIAL by GVKAHL, from Bidvest and ACSA in accordance with the Right of First Offer already exercised by GVKAHL.”

On October 31, GVK deposited Rs 1,248.75 crore in an interest-bearing, non-lien escrow account in SBI as directed by the arbitration tribunal.

On November 6, the Bombay High Court rejected Adani’s plea to restrain Bidvest from selling its stake to GVK or any other party. The Adani group’s lawyer said the company is “willing to deposit the amount provided Bidvest agrees to extend the November 7 date to February 7, 2020.” Bidvest refused and on November 11, Adani approached the court seeking its direction to stop ACSA from transferring its 10% stake to GVK or to any other party. 

On November 14, the CCI published an order granting permission to Adani for acquiring the 13.5% stake of Bidvest and ACSA’s 10% stake in MIAL. The order mentioned that Adani had submitted the request for approval on October 17, and it had signed SPAs with Bidvest and ACSA on March 5 and March 22, respectively.

The tribunal heard the case for three consecutive days starting November 24, but the arguments could not be completed. 

On December 7, the Delhi High Court dismissed a petition filed by Bidvest stating that since the tribunal would be concluding hearing, it saw no reason to intervene.

Apex Court Takes Up Dispute

Bidvest then moved the Supreme Court against the order of the Delhi High Court arguing that any further delay in taking a decision on the share sale would adversely affect its business interests, and that Adani might back out from the proposed purchase of shares. If GVK had the money to purchase its 13.5% stake, it should provide evidence to the court by December 16, Bidvest argued.

On January 10, ACSA, too, challenged the arbitration proceedings against it in the Supreme Court. According to a report published in the Economic Times, ACSA wanted an arbitrator of its choice or someone suggested by the apex court along with the existing three members on the bench. The Supreme Court asked GVK, MIAL and AAI to file their responses and fixed July 8, 2020, as the next date of hearing.

The court requested the arbitration tribunal to dispose of the application before it. On January 13, Bidvest argued in the Supreme Court that GVK was deliberately dragging the dispute as it did not have the money to conclude the transaction. Bidvest pointed out that the validity of its SPA with Adani would end on January 31. The Supreme Court ordered the arbitration panel to take a final decision by January 27 and listed the case for hearing the following day.

On January 19, the tribunal restrained Adani from going ahead with the purchase of Bidvest’s 13.5% stake in MIAL till the conclusion of the arbitration process. It also asked Bidvest not to sell its stake but also asked GVK to pay interest on Rs 1,248.75 crore to Bidvest till pendency of the dispute. The order read: “...the escrow documents submitted to the tribunal by GVK to show its compliance of the 15 September 2019 order… will not be altered till the end of the arbitral proceedings.”

That day it came to light that GVK did not have money to deposit in the escrow account with SBI and that two other companies, Green Rock B 2015 of Jersey and Indo-Infra Inc of Canada, had deposited the amount on behalf of GVK. The tribunal was satisfied that GVK had adhered to its order.

On January 28, the Supreme Court disposed of Bidvest’s petition citing the interim order of the tribunal and asked it to approach the Delhi High Court if it wanted to. The Mauritius-based associate of the South African company then went to the Delhi High Court where its petition is pending after 19 hearings.

On February 3, a frustrated ACSA approached the Ministry of External Affairs and the Ministry of Civil Aviation seeking their help to sell its 10% stake in MIAL. Business Standard quoted ACSA group executive Charles Shillows saying: “Our sale process has been frustrated due to numerous litigations, and regulatory approvals, leading to inordinate delay in such sale. Inordinate delays due to the legal process, and unfavourable regulatory approvals have led to concerns on future investments in India.” 

A GVK spokesperson responded: “We expect to close the transaction with Bidvest and ACSA when they stop litigation. They are trying to scuttle our right of first refusal, and instead must agree to conclude the transaction in line with the shareholder agreement.”

CBI and ED Move In

On June 27, the Central Bureau of Investigation (CBI) filed a first information report (FIR) against the promoters of the GVK group and “unknown” officials of AAI for having “connived” in, and for “deliberately committing (a) fraud and causing (a) loss to the government exchequer” by siphoning off “funds meant for the development of Mumbai airport.” The FIR (seen by the authors of this report) was reportedly based on information received from a “reliable source.”

The FIR says GVK transferred money to nine private companies for the development of 200 acres around Mumbai airport which was never done, thereby causing a loss of Rs 310 crore to the exchequer. The country’s “premier police investigating agency” alleged that that this money was misappropriated and that the nine companies claimed input tax credit on “fake” invoices thereby causing further losses to the exchequer. The FIR claimed that there were many more such “fake/bogus contracts that MIAL has fraudulently entered into with non-existing/non-functional entities and have embezzled the funds of MIAL.”

The CBI’s source also alleged that Mumbai-based MIAL kept its surplus funds in nationalised banks in Hyderabad and used the fixed deposit receipts to raise loans for GVK group companies by “forging” resolutions of meetings of boards of directors. Moreover, it was alleged that the GVK group used MIAL’s money to pay salaries of employees of group companies that had nothing to do with MIAL, thus causing a loss of Rs 100 crore.

This “reliable source” also alleged that GVK group promoters “connived with their family members/relatives/employees to give undue advantage to them and to cause corresponding unlawful loss to the AAI,” and that the promoters allotted premium retail areas in the Mumbai airport to such persons at very low rates to reduce the earnings of MIAL and causing losses to AAI. 

Moreover, the FIR alleged that the GVK group used travel agencies set up by the promoters’ relatives to book tickets for them and their employees, granting them “undue benefits.” The FIR alleged that due to these actions, the promoters of the GVK group and their associates had wrongfully gained Rs 705 crore and caused revenue losses to AAI.

On July 3, all major newspapers reported that the CBI team conducted searches in GVK group’s office premises in Mumbai and Hyderabad. It was disclosed that the Enforcement Directorate (ED) was also “studying the documents of MIAL” related to the CBI’s FIR.

A spokesperson of MIAL remarked: “MIAL is surprised to note the registration of a case by CBI against MIAL and others. MIAL would have provided every assistance had the agency sought explanation or any document even if a preliminary enquiry had been initiated.”

Business Today quoted a source from GVK who said MIAL accounts are audited by two of the “big four” auditors and that they had never pointed out any irregularities. He said the five allegations against the GVK group by CBI are based on “anonymous” sources and “unproven.”

True to expectations, on July 7, the ED filed money laundering charges against GVK to investigate whether the promoters had siphoned off money to create personal wealth by illegal routing of funds. 

Meanwhile, ACSA submitted to the Supreme Court that GVK had invoked arbitration proceedings against it in January 2020 and had chosen former Chief Justice of India  Dipak Misra as its nominee arbitrator. The application alleged that “ACSA’s right of party autonomy has been given a complete go-by by the acts of MIAL and is a clear act of collusion at the behest of GVK.”

ACSA wanted the apex court to appoint MIAL’s arbitrator because GVK has a major share in MIAL which might affect the choice of the arbitrator.

On July 28, the ED carried out search-and-seizure raids in nine premises of the GVK group, including the residence of its promoters and MIAL, under the Prevention of Money Laundering Act, to determine “if genuine funds were laundered to amass personal assets by illegal routing of funds by the accused.”

An article published in Mint on July 30, while explaining the financial problems of GVK, also suggested that the timing of the filing of the CBI FIR and the raids by the CBI and ED could not be ignored since these took place after Adani failed in attempts to take over MIAL with its potentially lucrative land parcels around Mumbai airport.

Embarrassment For Foreign Investors?

On August 14, the statutory auditor of GVK and MIAL, Price Waterhouse Chartered Accountants LLP, submitted its resignation stating that it would be inappropriate for it to continue after government agencies initiated a probe into the company’s accounts. Ten days later, almost out of the blue, media reports started appearing that the GVK group was in talks with the Adani group to sell its 50.5% stake in MIAL.

The website M & A Critique quoted an unnamed senior GVK official saying:  “The promoters (of GVK) categorically deny these reports. In all likelihood, Adani group is talking to the lenders to acquire the pledged shares and thereby wrest control.”

It was pointed out that all the shares of MIAL’s promoters had been pledged to various banks, with SBI as the lead lender. Two of the three investors that were ready to take 26.366% each in GVKAHL––ADIA and PSP Investments––wrote to the Prime Minister’s Office, the Ministry of Finance and various other ministries, including the Ministry of Civil Aviation, seeking a “fair and transparent solution” to the dispute and sought appointments with key ministry officials. 

“In the instant case referred to, the said investors have brought to our notice uncertainty caused by protracted litigation between private investors. (The) government has no role in such litigation of a private nature,” the Economic Times quoted an unnamed Finance Ministry official as saying. 

The same article quoted another government official who said: “The whole situation has become very uncomfortable for these global players. At a time when the matter is in the courts, the inexplicable manner in which various agencies have stepped up the ante is disconcerting.”

It seemed apparent to many that the government was “misusing” its law-enforcing machinery to help the Adani group. The investor consortium made it clear that they have a binding agreement and are not willing to back out of the deal.

On August 27, the consortium of three investors sent a legal notice to GVK and the lenders stating that none of them could enter into any negotiation with a “third party” like Adani for a stake sale, because the October 2019 agreement they had signed with GVK has an exclusivity clause and that the agreement was binding and valid till January 27, 2021.

It should be mentioned here that a particular senior executive in an industry association in Mumbai told one of the writers of this article on condition of anonymity that the so-called whistle-blower and the “reliable source” cited by the CBI in its FIR was the same person. He said: “I have been told that this whistle-blower had been ‘planted’ into the GVK group by one of its competitors and you get no prizes for guessing the name of the competitor.”

“Capitulation” Or “Cooperation” 

The formal announcement came on August 31 from the GVK group in the form of a public statement. It said that as per a regulatory filing, Adani Airport Holdings Ltd (AAHL), the flagship holding company of Adani group for its airport business, “has entered into an agreement to acquire the debt of GVK Airport Developers Ltd (ADL)” in MIAL which will be converted into an equity stake of 50.5%. The Adani group will also acquire another 23.5% of the company’s minority partners, ACSA of South Africa, and its associates based out of Mauritius, namely, the Bidvest group.

“The GVK Group and AAHL have agreed that AAHL will offer a stand-still to GVK, in addition, to release the guarantee given by GVK Power and Infrastructure Ltd with respect to the debt acquired by it,” the company said in its regulatory filing.

The Adani group said it would “take steps to complete the acquisition of a 23.5 per cent equity stake from ACSA and Bidvest in MIAL for which it has obtained Competition Commission of India (CCI) approval,” adding: “Upon the acquisition of the debt of GVK ADL, Adani Group will take steps to obtain necessary customary and regulatory approvals, as may be required, to acquire controlling interest in MIAL.”

In a separate filing, GVK said it has “agreed to cooperate” with AAHL under which company the Adani group would acquire debt from various lenders, including a Goldman Sachs-led consortium and HDFC, adding that this debt will be converted to equity at “mutually agreed terms,” without disclosing details.

Adani said it would infuse funds into MIAL as well as help achieve financial closure to start work on the Navi Mumbai International Airport in which MIAL has a 74% stake.

GVK Reddy, founder and chairman of the GVK group, stated: “The aviation industry has been severely impacted by COVID-19, setting it back by many years and has impacted the financials of Mumbai International Airport Ltd. It was therefore important, that we bring in a financially strong investor in the shortest possible time to improve the financial position of MIAL, as well as to help achieve financial closure of the Navi Mumbai International Airport project, which is a project of national importance. When the transaction is consummated, which is subject to customary approvals, we would be reducing a significant portion of liabilities to our lenders, which is of utmost importance to the group.”

Proceeds from the transaction would be used by the GVK group to primarily retire the debt obligations of its holding companies. It added that it had “notified ADIA, NIIF and PSP that the transaction documents stand terminated as it is no longer effective and implementable…The reason for this decision was (a) the terms of the transaction envisaged in the transaction documents were not implementable and (b) the alternative proposals discussed would not provide a resolution to the lenders of ADL by the end of August, which was a requirement of our lenders.”

Privatisation With A Vengeance

The day before the GVK group announced that it was going to “cooperate” with Adani to take over MIAL, on August 30, the Press Trust of India reported that Civil Aviation Minister Hardeep Puri had told a virtual meeting of users of the NaMo application: “I can tell you from my heart the government should not be running airports and the government should not be running airlines.”

His remarks came at a time when the Left and Democratic Front government in Kerala opposed the Cabinet decision to lease out the Thiruvananthapuram airport to the Adani group for 50 years under a public-private-partnership arrangement.

It remains to be seen what happens to the ongoing case in the Delhi High Court. Both GVK and the consortium of investors (ADIA, PSP and NIIF) had earlier put out statements that their agreement and term sheet are binding. Now GVK has said it unilaterally terminated the contract. A question remains as to whether a binding agreement which is still valid, can be unilaterally terminated, especially after the members of the consortium sent legal notices to GVK citing violation of the terms of agreement.

Time will tell if these cases are “amicably settled” or not.

Even as the path has been paved for Adani to become India’s largest private operator of airports, here are a few “fun facts” in conclusion.

Law firm Cyril Amarchand Mangaldas are the legal advisors to GVK for the transaction with its three investors.

Lenders of MIAL appointed Cyril Amarchand Mangaldas as an advisor to work out a negotiated settlement to recover their dues.

SB Adani Family Trust, directly and indirectly, holds 84.41% stake in Adani Properties Private Limited, the company which is slated to control of MIAL, while the remaining 15.59%  shares are held by Karan Gautam Adani, son of Gautam Adani, who also happens to be the son-in-law of Cyril Shroff, head of the firm Cyril Amarchand Mangaldas.

As the old saying goes, the world is a small place.

The writers are independent journalists.