GMR-led consortium Delhi International Airport Ltd (DIAL) has raised Rs4,940 Crore ($1.26 billion) of debt for the Indira Ghandi International Airport public-private-partnership (PPP) expansion project.

The deal has had a rough ride to financial close. DIAL's winning bid for the concession in January 2006 sparked acrimony, with one losing bidder taking legal action and 22,000 airport workers striking.

The legitimacy of the contract award was questioned by the Reliance Airport Developers consortium (including Reliance Energy and Aeropuertos y Sevicios Auxiliares), which accused the Indian government of changing the tender conditions just two hours before the opening of financial bids to allow second bids from companies. When the GMR-Fraport consortium, which had scored the highest on technical ratings, submitted only the second highest financial bid (43.6% of revenue-share to the government), they were invited to match Reliance's 45.99%.

Reliance insisted that the original tender rules stated that as long as a bid matched the minimum technical requirements, then the highest financial bid would be chosen. Perceiving a change in conditions, Reliance promptly sued. In April 2006 the Delhi High Court upheld the government's decision, stating the government's action was not "discriminatory, illogical or illegal". DIAL took control of the airport in May 2006 on a 30-year contract, with an option to extend for another 30 years. An appeal by Reliance to the Supreme Court failed in November 2006.

DIAL chief financial officer Shirish Navlekar says none of the bidders except GMR-Fraport Consortium met the minimum technical qualification requirements, but the government had to get the one qualified consortium to match the highest financial bid to award it the contract. The consortium also had an option to select the contract to modernize and expand the Mumbai airport (five of the six Delhi bidders had bid for Mumbai also), but as per the bidding criteria, any successful bidder was allowed to work on only one of the two airports, and DIAL picked Delhi.

Other losing bidders were: Macquarie with Stelite Infrastructure and Aeroports de Paris; D.S. Construction with Flughafen Munchen, Hirachandani Properties Private and Ebony Retail Holdings; Pan India Parvatan with TAV Investment Construction and Operation Corporation, Ganjam Trading Private and SNC Lavalin; GVK Industries with Airports Company South Africa and BidVest Group.

Work on the integrated passenger terminal and runway began in February 2007, and is set to finish by March 2010, in time for the 2010 Commonwealth Games. A new runway and domestic terminal will be ready by June 2008. When the project is completed, Indira Ghandi International will become the largest airport in India, with a capacity of 37 million passengers annually – almost double the current 20 million. But future phases of the Master Plan could see capacity soar to 100 million by 2026.

The financing is being provided by 12 banks, and comprises a 17-year rupee loan of Rs3,650 Crore and a 13-year foreign currency loan of $350 million. The rupee facility is priced at 10.5%; the dollar component is slightly lower thanks to a lower base rate.

Low liquidity levels in local and global markets have pushed margins up. Hyderabad airport, which reached financial close in August 2005, was also sponsored by a GMR-led consortium. Although a greenfield project, the deal priced at 7.5% on a 19-year loan; 10-year government papers at the time were trading at 7.2%.

A greater dollar component, of $500 million, was initially sought by DIAL, to align with foreign currency costs and revenue, but legislation in India limits the size of an ECB (external commercial borrowing) facility to the size of foreign currency expenses, which were estimated at $350 million.

The rupee financing is being provided by Canara Bank (Rs600 Crore), IIFCL (Rs500 Crore), Union Bank of India (Rs500 Crore), Oriental Bank of Commerce (Rs400 Crore), Central Bank of India (Rs400 Crore), Andhra Bank (Rs 250 Crore), Vijaya Bank (Rs250 Crore), IDFC (Rs250 Crore), Bank of India (Rs250 Crore) and Punjab National Bank (Rs250 Crore). ICICI Bank Singapore ($200 million) and Abu Dhabi Commercial Bank ($150 million) are providing the dollar facility.

The total capital expenditure for this first phase of the modernization and expansion is estimated at Rs8,900 Crore, on a debt-to-equity ratio of 55:45. Rs2,760 Crore of the equity amount is set to come as quasi-equity. Raising this quasi-equity, however, caused more controversy for DIAL.

DIAL proposed a financing model for developing 45 acres of land around the airport, whereby advance deposits will be taken from developers to part finance the airport assets. Minority shareholder Airports Authority of India (AAI) complained that this will mean lower payments to the government, as the 45.99% revenue sharing agreement will not apply to the deposits, which come as capital receipts not revenue receipts. DIAL's establishment of subsidiary Delhi Aerotropolis Private Ltd has also raised concerns from AAI, as it feels this is also a threat to its revenue stream.

Navlekar says that this is "nothing new and nothing different – at every stage from bidding to subsequent Master Planning stage, this was adequately disclosed", and perfectly within the terms of the Operation, Management and Development Agreement (OMDA); the Indian government agrees. Attorney General Milon K Banerji stated DIAL was acting "in accordance with the law and within the framework of OMDA", and the Ministry of Civil Aviation accordingly allowed DIAL to continue raising funds in this way.

DIAL has been meeting with international banks for two months to discuss plans for syndication, which it hopes to close by the end of March. Given the popularity of the deal at the first stage, banks will likely be keen to participate. Given the controversy that has hampered each stage of the deal, DIAL will likely be happy to close.

DIAL
Status: Closed 7 December
Size: Rs8,900 Crore
Location: India
Description: Modernization and restructuring of Indira Gandhi International Airport.
Concesionnaire: 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: Rs4,940 Crore
Rupee debt: Rs3,650 Crore
Tenor: 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
Tenor: 13 years
Lenders: ICICI Bank Singapore, Abu Dhabi Commercial Bank.