DIAL may get more from land than expected

The GMR Infrastructure Ltd led Delhi International Airport Pvt. Ltd (DIAL), which is modernizing the Indira Gandhi International Airport, may raise Rs1,300 crore from the sale of 45 acres to developers, a jump of 42% from the Rs912 crore it had expected from the same parcels in January. The proceeds from the prime real estate south of Delhi are key to the funding of the project and a greater-than expected amount from the sale could reduce the burden on passengers.

Travellers are now paying Rs1,827 crore directly to fund the project by way of a so-called airport development fee levied on each ticket. “There is an improvement. We expect, because the market has picked up slightly, 10-20% better realization than what we achieved in the first eight (parcels),” said Sidharth Kapur, chief financial officer (airports), GMR Group, the majority stakeholder in both Delhi and Hyderabad airports.

(By Skyline College) 


The 45 acres have been divided into 13 parcels, of which the first eight have fetched Rs865 crore. The remaining five are near finalization and are likely to be sold over the next two months. In January, DIAL sought to levy a development fee on passengers to bridge the funding gap in the at least $2 billion (Rs9,360 crore) project that is scheduled to be completed in March. The assessment had shown a realization of Rs912 crore from the sale to hotels and commercial developers. “We are expecting about Rs500 crore for the remaining,” Kapur said, adding that of the five parcels, at least three will be given out to hotels and two for commercial development.

Hotel chains such as Accor Hotels, Bird Group-Dusit Thani Group and the Lemon Tree Hotel Co. have bid aggressively and won, Kapur said. Besides, another reason for the prices going up includes the airport operator’s division of parcels into smaller plots. The lease agreement for these plots includes a fixed security deposit for three years and an annual licence fee that would increase at least 5.5% every year for the lease duration of 57 years.

The airport operator will submit its final cost of development to the Airports Economic Regulatory Authority, or Aera, by end-January, including the additional funds garnered from the land sale. The development fee is likely to be reviewed after this cost is submitted. However, since the first phase of the airport expansion ends in March, DIAL does not expect to lease out any more land any time soon. It is allowed to use 250 acres of the 5,000 acres for commercial development.

“We don’t want to monetize everything right now because the market also needs to absorb it,” Kapur said. For the rest of the commercial area, “we will have to wait for the opportune time”, he said. Besides DIAL, GMR Group runs GMR Hyderabad International Airport Ltd and Sabiha Gökçen Airport, Istanbul’s second airport, which it’s developing with a Turkish consortium led by Limak Inc. and Malaysia Airports Holdings Bhd. Airports contributed 30% to its revenue for the fiscal ended 31 March, next only to its power business, which contributed 53.21%.

The Hyderabad airport garnered Rs382 crore and the Istanbul airport Rs270 crore. DIAL, whose other consortium members include Frankfurt airport operator Fraport AG, a unit of Malaysia Airports Holdings, the Airports Authority of India and private equity firm India Development Fund, contributed the biggest chunk of Rs507 crore in the last fiscal, up from Rs468 crore the previous year. Delhi airport’s integrated Terminal 3, with a capacity to handle 34 million passengers and spread over 5 million sq. ft, will be commissioned in July, bringing to an end the development that started in late 2006.

The construction work is expected to be over by March end, and will be followed by systems testing till April. Delhi airport handled 23.4 million passengers in the last fiscal year and is served by 70 domestic and international airlines connecting at least 110 destinations across the world. With the opening of the new terminal, all domestic and international passengers will use the same integrated facility. Currently, operations are split between domestic and overseas terminals.

Source: November 30, 2009, Mint

Posted by: Skyline College a premium MBA, BBA, Mass Communication and Travel & Tourism institute in Delhi and Gurgaon.