Long-Term Bond Sale Plan Explained

The GMR Airports of India, which is a large airport operator in charge of airports such as those in Delhi and Hyderabad, is about to make a major step in the debt market. The company will also issue its longest-tenor bond ever in an effort to raise a large amount, which will be used strategically to restructure the company financially and to meet its overall needs. Three sources familiar with the developments believe that the airport operator will be able to finish the fundraising exercise by the end of the current month. This long-term bond sale can be considered an important aspect of the current company strategy of streamlining its financing and debt portfolio.

Proposed bond structure and financial goals

GMR Airports will issue approximately $245 million (roughly ₹22 billion) shares under this issue. The maturity period is the distinguishing characteristic of this planned sale: the bonds are going to be designed with a maturity period of 15 years, which is the longest bond issue undertaken by GMR Airports. This long tenor reflects the interest of the company in gaining stable long-term funding for its infrastructure capital-intensive activities.

The details of this intended problem are still confidential, as revealed by the informants who demanded anonymity because of the nature of the internal discussions that are still going on. Although privately held, the market is considering the intended issue as a significant move towards consolidating the balance sheet of the company.

The funds raised due to the sale of long-term bonds will be allocated to two major financial targets of the GMR group. First, the fund will be used to refinance the current debt of another important group of GMR Hyderabad International. Secondly, part of the capital will be used for general corporate purposes, which will give the company flexibility in its operations.

This bond issue perfectly fits in with the overall financial policy of GMR Airports, which is to gradually substitute the expensive foreign-currency borrowing with inexpensive domestic debt. This refinancing process is not a new development by the company, but it has realised the benefits of local sources of funds in the current economic environment. The approach plays an important role in the management of interest rate risk and currency fluctuation exposure on external commercial borrowings.

Demonstrating a pattern and substantial capital inflow

Recent large-scale infusion of the group by high-profile investors has added considerable strength to the viability and appeal of the GMR Airports’ local fundraising activities. According to merchant bankers, local funding is now significantly cheaper to the company, after a significant investment in the company last year by the Abu Dhabi Investment Authority (ADIA).

ADIA has put in around ₹63 billion into the structured debt of GMR Enterprises, which is the holding company of the entire GMR Group. This large infusion of funds by an international institutional investor such as ADIA is a good confirmation of the financial soundness and outlook of the GMR Group and thus reduces the cost of capital on future domestic debt issuance, such as the 15-year bond proposed.

The GMR Airports issued bonds that are rated investment grade as they were rated A+ by Crisil. This high rating will be used to boost investor confidence and acceptance of the future long-term issue. The 15-year bond issue about to be sold is not a one-off occurrence, and it is a success of numerous successful domestic debt issues that GMR Airports has undertaken.

With a growing trend of using the local markets, the company had already augmented a substantial amount of ₹59 billion in August itself. This previous fundraising was done by issuing bonds of two maturity profiles: one lot of bonds that runs to 18 months and another that runs to three years. These two shorter-term bonds were both issued on a fixed annual coupon rate of 10.50%.

The shift to a significantly longer 15-year tenor is now a strategic enhancement of the relationship between the company and the domestic bond market, and it binds capital over a considerable duration to fund its long-term infrastructure assets.

Conclusion

The proposed sale of about $245 million (roughly ₹22 billion) of 15-year bonds by GMR airports will be a landmark event in the history of the company in terms of debt management. GMR Airports is also in the strategic position of ensuring financial stability and growth in the long run by concentrating on the substitution of the costly foreign debt with low-cost and long-lasting domestic capital. When the company’s A+ rating supports this issue and the market, which is positive after ADIA invested in it, is successful, this will further entrench the growing role of the private credit and long-term bond financing as vital pillars in financing the critical, high-growth infrastructure sector in India. Even though the company itself did not reply to the email with a request to comment, the sources in the market state that this historic issue of issuing is imminent.