The GVK group announced on Monday that it has “agreed to cooperate” with the Adani Group for its airport business, leading to the latter picking up a 74% stake in Mumbai International Airport. As part of the deal, Adani acquired GVK’s debts from various lenders.
The terms of cooperation, according to GVK’s filing with the stock exchanges, includes — releasing of GVK of various obligations; Adani can convert the debt to equity; Adani infusing funds into Mumbai airport, and Adani working towards the construction of the upcoming Navi Mumbai airport.
But the road to GVK agreeing “to cooperate” has been anything but smooth.
GVK held a 50.50% stake in Mumbai airport, the Airports Company of South Africa held a 10% and South African firm Bidvest held 13.5%. The remaining 26% is held by the Airports Authority of India. Now, Adani is acquiring the 23.5% equity stake of both ACSA and Bidvest.
In March 2019, the Adani group agreed to acquire 13.5% stake of Bidvest for Rs 1,248 crore. However, GVK Group blocked the deal claiming the right of first refusal. The matter went to court, GVK, however, could not bring money to the table to buy Bidvest’s stake.
In October that year, the GVK group entered into an agreement with a consortium including the Abu Dhabi Investment Authority, PSP Investments of Canada, and the state-owned National Investment and Infrastructure Fund to sell 79% of its stake in GVK Airport Holdings, which would be used to retire debt obligations and fund purchasing shares of Bidvest and ACSA.
This current deal has gone through even though GVK signed an agreement with the consortium. The group has reportedly sent a legal notice to GVK, stating that the stake sale would be a breach of the agreement they had signed last year.
In its filing, GVK said it has notified the investors that the transaction documents stand terminated, and 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,” it said.
On the other hand, things have also been getting worse for the GVK with the CBI coming down on it. In June, the CBI booked a case against GVK Chairman Gunupati Venkata Krishna Reddy, his son Venkata Sanjay Reddy, Mumbai airport Managing Director GV Sanjay Reddy and eight others, including people from the AAI on charges of cheating and forgery for alleged irregularities to the tune of Rs 705 crore in the running of the airport.
"It is alleged that the promoters of the GVK group in MIAL in connivance with their executives and unidentified officials of the AAI resorted to siphoning of funds using different ways," the CBI’s FIR reportedly said. It is charged with causing a loss of Rs 310 crore to the exchequer by entering into fake work contracts on the land given by the government to MIAL.
In early July, the CBI also carried out searches at several locations in Mumbai and Hyderabad.
The Enforcement Directorate then filed a money laundering case against the GVK Group, MIAL and others on July 12 to probe the alleged irregularities. The agency filed an enforcement case information report under the Prevention of Money Laundering Act, and was probing if genuine funds were laundered to amass personal assets through illegal routing of funds.
In the last week of July, ED teams conducted searches at three locations in Hyderabad, apart from simultaneous searches at Mumbai and other places.
As part of Monday’s announcement, GVK Reddy said that the aviation industry was severely impacted by COVID-19.
“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. It is under these circumstances that we agreed to cooperate with Adani so as to achieve these twin objectives. Further, 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,” he said.