GMR Land Lease to Fetch Rs2,835 Crore

AGMR Infrastructure Ltd-led consortium, which operates Delhi’s Indira Gandhi International Airport, is hoping to secure at least Rs2,835 crore for leasing 45 acres to build a hospitality district next to it.

The project hugs the capital on one side and the expensive suburb of Gurgaon on the other, and prices of real estate in the area have risen as much as three-fold in as many years, allowing GMR to try raise what will amount to one of the largest commercial realty deals here.

Despite the hefty price tag, real estate developers are likely to line up to try and secure the project, with the bidding process for the project scheduled to be completed by 13 August. The winning bids—or a single winner—are expected to be selected by 3 September and finalized by 18 September.

Indeed, Madhu Terdal, chief financial officer, strategic finance, GMR Group, confirmed that the company has received 40 bids from domestic and international companies including real estate developers, funds and banks. The money raised will be used to build and modernize the airport. He declined to elaborate.

The 45 acres are divided into six parcels of land measuring between 4.68 and 14 acres. The development would add at least 3,240 hotel rooms, according to a copy of a request for proposal (RFP) viewed by Mint. The built properties would include luxury, mid-market and business hotels, a resort or other high-end leisure product, a convention centre and service apartments.

The land cannot be sold because it is owned by the Airports Authority of India. The GMR-led consortium owns the right to build and operate the airport for a 30-year period, with a possible extension of another 30 years.

About Rs675 crore of this money is scheduled to be refunded to the winning bidders but only after the full length of the lease expires. While GMR declined to disclose details of the pending deal, people familiar with the bidding process told Mint that the land will be leased for an initial term of 28 years, with the option of increasing it by another 30 years.

The minimum cost of the development is Rs63 crore per acre.

This includes Rs13 crore per acre as an advance on development costs, a deposit of Rs15 crore per acre to help fund the development of the proposed commercial district, and subscription to Rs35 crore worth of redeemable preference share capital of Delhi Aerotropolis Pvt. Ltd (DAPL), a subsidiary of Delhi International Airport Ltd, or DIAL, the airport consortium.

As much as 23.8%, or Rs15 crore per acre, of the minimum cost, will be refunded by the GMR consortium at the end of the initial lease period.

Additional annual licence fees will likely drive the cost much higher, based on the minimum conditions stipulated by DIAL. Developers will have to pay licence fees to DIAL for 28 years at an amount quoted by the bidder and a refundable security deposit that amounts to 10% of each of the aggregate licence fees over the course of the contract and the development advance. This amount couldn’t be ascertained.

“This is prime property, practically in the middle of the city. So it makes sense to invest this kind of money,” said Amrit Pandurangi, who heads the infrastructure and transport practise for consulting company PricewaterhouseCoopers.

“GMR had earlier also said they were going to go in for a securitization mechanism,” said Pandurangi. “Basically, if they have future receivables over a certain period, they can securitize it by taking upfront money. This is seen in other sectors but only now is the infrastructure sector using this method. It is an innovative way to leverage huge investments they are making.”

“It is a good investment considering that (a) lot of tourists visit India every year and there is a huge demand for hotels,” said an official with Parsvnath Developers Ltd, a real estate development company with interests in hotels, retail and special economic zones. He did not wish to be identified and declined to say if his firm was a bidder.

International airports typically fund expansion through a combination of passenger service fees, money charged to airlines and from non-aeronautical revenues such as parking, commercial concessions, and real estate development, said John Kasarda, director of the Kenan Institute of Private Enterprise at the University of North Carolina.

“DIAL is constrained by current laws and government land ownership from a traditional concessionary approach to financing project development,” he said.

The consortium is allowed to develop 5% of its land bank—about 250 acres—commercially for aviation-related developments, according to an Operations, Management and Development Agreement signed between the consortium and the Airports Authority of India. “They, therefore, have to take more innovative financing approaches such as the one being offered to developers,” said Kasarda.

Shabana Husain contributed to this story.