HYDERABAD: It could all come crashing for infrastructure major GVK Group and industrialist G V Krishna Reddy. The 83-year-old Padma Bhushan awardee was caught in the CBI’s crosshairs for alleged fraud, forgery, cheating and criminal misconduct. Reddy’s son and managing director G V Sanjay Reddy was also named in the FIR along with nine other companies and unnamed officials of Airports Authority of India.
The blow comes amid the father-son duo’s pitched ownership battle in India’s busiest airport — Mumbai International Airport Ltd (MIAL). GVK’s subsidiary GVK Airport Developers is already the majority owner with 50.5% stake in MIAL, but Reddys are on the edge as fellow businessman Gautam Adani is one step away from usurping 23.5% stake from MIAL’s two foreign stakeholders.
Allowing Adani in simply isn’t an option for Reddy as airports business is the holy grail of GVK empire spanning six subsidiaries and 18 step-down subsidiaries. It single-handedly contributed 90% of the holding entity GVK Power & Infrastructure’s consolidated income of Rs 4,098 crore in FY19. With GVK offloading complete stake in Bangalore International Airport last year and Navi Mumbai airport still under development, MIAL is now its sole cash cow.
In contrast, GVK’s many other businesses are facing challenging times and even defaulted principal and interest payments worth over Rs 1,570 crore during FY18 and FY19. GVK’s flagship power business has turned in repeated losses and defaulted repayments, while lenders have recalled entire credit facilities extended to some subsidiaries.
Trouble has been brewing for some time for MIAL. It found itself in the thick of a storm last year with the MCA inspecting its books following a whistle-blower complaint alleging misappropriation of funds. Lenders conducted a forensic audit of the holding entity, but found no deviations, a senior official said.
GVK risks losing cash cow airport unit in fraud case
Price Waterhouse, independent auditors for the holding entity, also raised red flags on the company’s internal financial controls in the FY19 annual report. They cited ‘material weakness’, where GVK’s internal financial controls pertaining to asset impairments weren’t operating effectively, and could potentially result in the company not recognising possible impairment losses.
It’s in this weak moment that Adani signed separate stake buyout deals with MIAL’s South African stakeholders’ Bidvest and ACSA. Predictably, GVK challenged and the matter eventually reached the Supreme Court. Further reinforcing its commitment not to part with MIAL, GVK even decided to sell 79.1 per cent stake in its airports subsidiaries for Rs 7,614 crore. Last October, it signed definitive agreements with Abu Dhabi Investment Authority and the National Investment & Infrastructure Fund to sell stake, though there has been update on the the since the initial announcement.
While it’s unclear how the deal was structured, it’s interesting to note that 68 per cent of its stake in GVK Airport Holdings was already pledged. The proceeds from the above transaction were to be used to retire debt worth Rs 5,750 crore and acquire additional share in MIAL taking GVK’s stake to 74 per cent. Meanwhile, MIAL’s debt as of March 2019 stood at Rs 7,706 crore.