DIAL: M for mastery

DIAL, the consortium of GMR Group, Fraport, Malaysia Airport Holdings, and the India Development Fund (IDF) closed its financing for the redevelopment of the international airport in Delhi in December 2007. The financing is one of the largest PPPs ever to close in the country, and was completed against an extremely challenging legal and political backdrop.

The sponsor group has a 74% stake in the airport (GMR Group 50.1%, Fraport 10%, MAHB 10% and IDF 3.9%), with the Airports Authority of India (AAI) holding the remaining 26% share. The AAI is a branch of the Indian government.

The concession is to design, build, finance and operate the asset for a period of 30 years, with the option to extend the term by a further 30 years.

The total cost of the project is Rs89.75 billion ($2.2 billion), of which 55.5% was debt financed, with the remainder in equity. The debt was provided in two currencies; a rupee portion and a dollar portion.

The dollar-denominated external commercial borrowing (ECB) tranche was $350 million, underwritten by ICICI Bank and Abu-Dhabi Commercial Bank, which took $200 million and $150 million respectively.

The ECB tranche has a 13-year maturity, with a 5-year grace period on repayments of principal repayment, and then structured semi-annual repayments thereafter. The pricing on the dollar debt is 185bp over 6-month Libor. ICICI Bank has launched syndication on its portion of the debt.

The sponsor had originally intended to borrow $500 million in ECB debt. However, Indian government regulations restricted the dollar component of the financing to $350 million, as it only permits ECB facilities for PPP projects up to the estimated size of foreign currency expenses, and requires the rest to be in the domestic currency.

The Rs36.5 billion rupee tranche was syndicated to ten institutions; Canara Bank (Rs6 billion), IIFCL (Rs5 billion), Union Bank of India (Rs5 billion), Oriental Bank of Commerce (Rs4 billion), Central Bank of India (Rs4 billion), Andhra Bank (Rs2.5 billion), Vijaya Bank (Rs2.5 billion), IDFC (Rs2.5 billion), Bank of India (Rs2.5 billion) and Punjab National Bank (Rs2.5 billion).

The rupee debt has a 17-year maturity, with a 5-year grace period on principal repayment, and structured quarterly repayments thereafter. This tranche of the debt carries a coupon of 10.5%.

The project involves a three-year construction period at Indira Ghandi International (IGI), with a number of proposed developments under what the sponsor refers to as its Master Plan. Work on the new passenger terminal and runway began in February 2007, and is due to be completed in the first quarter of 2010, scheduled to open before the Commonwealth Games, which are due to be held in Delhi in October 2010.

The project also involves the construction of a domestic terminal and runway, which is due to be in operation in the second quarter of 2008. The EPC contractor is Larsen & Toubro.

When completed, Indira Ghandi International will be the largest airport in the country, with an annual capacity of 37 million passengers. Currently, the capacity is 20 million passengers each year. The sponsors' plans also outline the possibility of increasing capacity to 100 million by 2026.

The project has overcome a number of adversities in reaching financial close. The concession was awarded in January 2006 under some degree of controversy. The DIAL consortium scored highest among the bidders in the technical rating. It was permitted to increase its financial bid, to share 43.6% of the airport's gross annual revenue with AAI, to match the 45.99% proposal of an opposing bidder to win the concession. DIAL and AAI maintained that the other bidder did not meet the technical requirements.
The competitor, a consortium of Reliance and Aeropuertos y Sevicios Auxiliares, sued AAI in April 2006. The original decision was upheld by the court, and again in a later appeal, but the process delayed the sponsor taking over the asset until May 2006.

More recently, the concession has suffered disputes with AAI regarding the proposed use of land surrounding the airport. The sponsor intended to lease the 45 acres to developers, and use deposits and payments to contribute to the financing for the assets. However, as these proceeds would not be part of the airport's gross revenues, the AAI would not be entitled to a share. Though legally permissible, the development programme has proven a significant cause of contention.

And as Project Finance went to press, the airport was subject to a strike by its 17,000 AAI employees, petitioning for better wages, working conditions, and against the privatisation of Indian airports. The concessionaire has outsourced private housekeeping and emergency services to deal with the strike.

The Indian aviation industry has grown significantly in recent years, with passenger traffic increasing from 59 million passengers per year in 2005 to 96 million in 2007. The lender estimates that this growth rate will continue for the next five years at the Delhi airport, and that Delhi will overtake Mumbai as the country's largest aviation hub.

Furthermore, DIAL is permitted first refusal on the upcoming Noida airport development concession, outside of the city. Should the sponsor accept the project, and execute a similarly successful financing, it could monopolise aeronautical centres in the region. Despite the consistent and continuing difficulties, the DIAL financing serves as a benchmark for PPP elsewhere in the country.

Delhi International Airport Limited
Status: Closed 7 December
Size: Rs89 billion
Location: India
Description: Modernization and restructuring of Indira Gandhi International Airport.
Sponsor: Delhi International Airport Ltd [GMR Infrastructure & Subsidiaries (50.1%), Airports Authority of India (26%), Fraport (10%), Malaysian Airport Holdings (10%), India Development Fund (3.9%)].
Total debt: Rs49.4 billion
Rupee debt: Rs36.5 billion
Maturity: 17 years
Lenders: Canara Bank, IIFCL, Union Bank of India, Oriental Bank of Commerce, Central Bank of India, Andhra Bank, Vijaya Bank, IDFC, Bank of India, Punjab National Bank.
US dollar debt: $350 million
Maturity: 13 years
Lenders: ICICI Bank (Singapore), Abu Dhabi Commercial Bank
Sponsor legal: In-house
Lender legal: Herbert Smith, Amarchand (India)
EPC Contractor: Larsen & Toubro