The Boards of Directors of Aéroports de Paris (Groupe ADP) and GMR Airports Infrastructure Ltd (GIL), both listed companies and co-shareholders of a respectively 49% and 51%-stake in the airport holding GMR Airports Ltd (GAL), have approved the execution of a Framework Agreement [1] initiating the process aiming at a merger between GIL and GAL in the first half of 2024 ("New GIL").
The contemplated merger, will allow Groupe ADP to become shareholder of an airport company listed on BSE Limited and National Stock Exchange of India Limited ("Indian Stock Exchanges"), as contemplated when acquiring its stake in GAL in 2020.
This operation will:
- Simplify and clarify the capital structure of the airport holding company;
- Fully reveal the value of GAL and provide liquidity to the stake held by Groupe ADP;
- Make New GIL a more agile development platform to capture new opportunities in India and South-East Asia.
"Three years after our acquisition of a stake in the Indian group GMR Airports, a new step in our presence in Asia commences today. The operation launched today will reveal the value of our stake through an airport company listed on the Indian Stock Exchanges. This operation will enable us to fully seize the development opportunities of the Indian airport market in the coming years. With TAV Airports, a group listed in Turkey, and GMR Airports, to become listed in India by mid-2024, Groupe ADP, itself listed in Paris, will hold a unique position in the airport industry. It is thus initiating an original model for financing its development. As a multi-local global player, Groupe ADP pursues its ambition to create value for all stakeholders and puts decarbonization of its operations as a common objective for all its airport platforms." stated Augustin de Romanet, Chairman and CEO of Groupe ADP.
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As provided for in the Framework Agreement signed today and subject to the approval of the creditors and shareholders of GIL and GAL and of the required regulatory approvals, GAL and GIL would merge in the first half of 2024, forming an airport holding company listed on the Indian Stock Exchanges.
The Framework Agreement provides for the following characteristics:
- Groupe ADP would hold 45.7% economic interest in New GIL, according to independent valuation exercises and supported by fairness opinions;
- Earnouts and ratchets [2] contracted between Groupe ADP and GIL upon the acquisition of the stake in GAL by Groupe ADP in 2020, would be fully settled;
- Residual contingent liabilities of GIL related to non-airport activities would be significantly reduced, allowing Groupe ADP to become shareholder of the listed entity with no exposure to such liabilities;
- Groupe ADP would be entitled, through a shareholder agreement, to extended rights in New GIL's governance, similar to those held currently in GAL, hence preserving its significant influence.
In detail, this operation aims at several strategic and financial objectives:
1.The operation will allow New GIL to become an airport pure-player
Since its demerger from GMR Power and Urban Infra Ltd. (GPUIL) at the beginning of 2022 [3], GIL has held exclusively airport assets on its balance sheet. However, it has continued to carry important residual contingent non-airport liabilities related to GPUIL, GMR-Enterprises' (GMR-E) non-airport infrastructure arm.
To accelerate the settlement of these contingent liabilities and become an airport pure-player, Groupe ADP proposes to subscribe to 330,817 Foreign Currency Convertible Bonds (FCCBs) issued by GIL for a total amount of c.331 million euros. As per the Framework Agreement, the proceeds from these FCCBs will be used by GIL to clear its balance sheet by way of repaying corporate debt and also settling a major part of its liabilities. This reorganization of liabilities will constitute a condition precedent for the merger of GAL and GIL.
2. Groupe ADP will retain a substantial economic interest in GIL's capital, while preserving the local nature of GMR Airports
Groupe ADP would hold 45.7% economic interest in New GIL [4], according to independent valuation exercises and supported by fairness opinions. This takes into account the definitive settlement of ratchets clauses and includes a liquidity premium.
In line with Groupe ADP's multi-local approach, the framework-agreement provides for GMR-E to maintain its position as controlling shareholder in New GIL. To signify this positioning, Groupe ADP’s shareholding in New GIL will be segregated into two [5] categories of instruments: ordinary equity shares, and Optionally Convertible Redeemable Preference Shares (OCRPS), entitled to a dividend equivalent to an ordinary equity share, and allowing Groupe ADP to retain a substantial interest in the performance of the asset.
Upon completion of the merger between GAL and GIL, Groupe ADP's 45.7% economic interest will be applied to account for the results of the New GIL, which will be consolidated under the equity method into the group's accounts. Until the merger completion, the 49% stake held by Groupe ADP in GAL remains accounted for under the equity method.
3. Make New GIL a more agile development platform to capture new opportunities in India and South-East Asia
GAL possesses major assets in India, including the airports of Delhi (first in Asia-Pacific to reach ACA [6] level 4+), Hyderabad and Goa (opened on January 5th, 2023), and in Indonesia, as well as several other airport projects under development in India and Greece, with attractive prospects for both growth and medium-term profitability.
In the coming years, the potential for external growth in Asia is important, driven by the need for airport infrastructure investments in the region. In India in particular, privatizations projects have been announced by the government. To fully exploit those growth opportunities, the merger of GAL and GIL would allow New GIL to form a more agile platform able to capture this profitable development potential.
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Estimated timetable of the contemplated merger
Subsequent to the approval of merger scheme by the respective boards of directors of GAL and GIL today, GIL will submit the merger application to the Indian Stock Exchanges where GIL is currently listed for their approval and to the Securities and Exchange Board of India (SEBI). The merger application will be subsequently filed for approval with the National Company Law Tribunal (NCLT).
The merger is expected to be effective by the first half of 2024 following completion of all relevant steps. The Framework Agreement signed today between GMR-E, GIL, GAL and Groupe ADP commits all parties to complete the necessary steps toward the merger, subject to all regulatory approvals.
Expected impact on Groupe ADP's consolidated financial statements
The subscription of FCCBs, to be accounted for as financial assets measured at fair value, will lead to a cash expense of c.331 million euros in the coming weeks. A provision regarding earn-outs clauses being already accounted for in Groupe ADP's accounts, their settlement will be neutral in the group's P&L and lead to a cash expense of c.62 million euros before the merger.
Upon completion, the merger should result in recording a non-cash expense, translating the change in economic interest of Groupe ADP (including the settlement of ratchets clauses as well as a liquidity premium) as well as the integration of the assets of New GIL, excluding GAL, whose expected net value at the date of merger will be negative. The impact of these items, currently estimated at c.100 million euros on Groupe ADP's net income from ordinary activities, will be determined at the date of merger.
Confirmation of 2023-2025 financial targets
This operation, which contributes to accelerating GMR Airports' profitable development, is in line with the Group's strategy of selective international growth.
Groupe ADP hence confirms its objective of a net financial debt/EBITDA ratio of 3.5x to 4.5x in 2025, including the aforementioned expected impacts as well as potential new international growth projects. Groupe ADP confirms its dividend policy of a 60% payout ratio of the Net Result Attributable to the Group for the 2023-2025 period, with a minimum of €3.0 per share.
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S&R and Associates and Hogan Lovells acted as legal advisors and Urban Strategic Pte Ltd as a strategic advisor to Groupe ADP.
[1] Framework Agreement signed between Groupe ADP, GIL, GAL, GMR-E.
[2] Upon Groupe ADP's acquisition of its 49% stake in GAL, completed in two stages in February and July 2020, Groupe ADP granted GIL earn-out clauses, conditional upon the achievement of certain performance targets of GMR Airports' activities by 2024, as well as certain ratchets, conditioned to the occurrence of certain commercial and regulatory events by 2024, allowing GIL to receive up to respectively 126 million euros and 8.2% of the capital.
[3] See December 31st, 2021 GMR Corporate announcement and related disclosures.
[4] Excluding potential impact that would result from a conversion of FCCBs.
[5] Excluding any potential equity shareholding that may arise as a result of converting the FCCB.
[6] Delhi International Airport has been recognized Level 4+ (Transition) of the ACI’s Airport Carbon Accreditation program on November 17th, 2020.
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