GMR Airports Infrastructure (GIL), on Monday, announced the merger of GMR Airports (GAL) with itself, in a bid to strengthen its balance sheet and to gear up for upcoming growth opportunities in airports business.

On Saturday, the company’s board approved raising around ₹2,900 crore by issuing 10-year foreign currency convertible bonds with a coupon of 6.76 per cent to Aéroports de Paris SA (Groupe ADP), which already has a 49 per cent stake in GMR Airports. The merger would take GMR Group’s partnership with Groupe ADP to the next level, the company said in a release.

Read: GMR Airports Infrastructure to issue FCCBs worth 330.8 mn euros to Aeroports De Paris S.A

The coronavirus pandemic had disrupted earnouts for Groupe ADP, pegged at the time of the transaction in 2020 at 8 per cent equity earnouts of GMR Airports and cash earnouts of ₹1,060 crore to GMR Airports Infra. GIL and Groupe ADP will settle the cash earnouts to GIL at ₹550 crore and the equity earnouts whereby GIL’s stake in GAL will increase to 55 per cent from 51 per cent.

Further, “with the subscription of FCCB’s by Groupe ADP, GIL will be further deleveraged by repaying corporate debt and also settle most of the contingent liabilities related to GPUIL,” it said.

With the earlier demerger of the non-airports business of GMR Infrastructure into GMR Power and Urban Infra (GPUIL), GMR Airports Infra is now a full-fledged pure-play airport operator. With an improved balance sheet, it will be in a much stronger position to scale up the airport business by participating in profitable opportunities in India, South Asia, South East Asia and West Asia.

GM Rao, Chairman of GMR Group said in the statement, “The merger signifies a transformative event and will be value enhancer for all the stakeholders, including shareholders, employees and for the aviation industry.” He added that the partnership with Groupe ADP will enable the company to “capture fast-growing airport business opportunities.”

GIL will continue as the listed entity after the merger,  with the GMR Group as the single largest shareholder owning 33.7 per cent, Groupe ADP holding 32.3 per cent and the public holding 34 per cent.

Reasons behind the merger

The company said that one of the main reasons for the merger was strengthening the strategic relationship with Groupe ADP which will now hold a stake in GMR Airports Infrastructure as a result of the merger. The issue of FCCBs to Groupe ADP is expected to reduce the  cost of capital.

“Going forward, an improved balance sheet will facilitate greater access to growth capital at lower cost,” the company said. “Groupe ADP’s subscription to FCCBs is a testimony to the strength of the  relationship between GMR & Groupe ADP.”

Repaying corporate debt and settling majority of the contingent liabilities related to GMR Power would deleverage its balance sheet.

The merger would add value to shareholders since they would ”move closer to the airport assets and cash flows” removing the holding company-subsidiary structure to which the market usually assigns a discount. The merger is expected to be completed in the next financial year, subject to all other statutory approvals.