Project Structuring, Development and Financing of Delhi International Airport

Sidharath Kapur
CFO Airports, GMR Group, India

The views expressed in these presentations are the views of the author and do not necessarily reflect the views or policies of the Asian Development Bank (ADB), or its Board of Directors or the governments they represent. ADB does not guarantee the source, originality, accuracy, completeness or reliability of any statement, information, data, finding, interpretation, advice, 1 opinion, or view presented, nor does it make any representation concerning the same.

Models of Privatization
Design and D&B+ Build (D&B) Finance (D, B &F) Ownership Investment Management Govt Govt Govt Govt Govt Govt Subcontract D&B DB&F + Maintain (DBF&M) Govt Govt Private DBF & Asset Maintenance DBF&M + Operate (DBFO&M) Govt Govt Private DBFM + Operations D&B+Own and Operate (DBOO) Private Private Private Own and Operate DBOO + Transfer (DBOOT) Private Private Private Own and Operate Privatization

Private Private Private Own

Private Subcontract Sector D&B Involvement

Common Concession Formats Govt may retain partial equity in SPV

Public Float, Private Sale, Joint Venture

Delhi International Airport a specimen of DBOOT Model

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Privatization Objectives - Government

Required Airport Infrastructure Milestones for Capacity Expansion Time lines for construction

Infrastructure

Operations

Performance Standards Smooth and Uninterrupted operations Safety

Financial and Economic

Concession Fees/Equity Valuation Government Guarantees and Support Termination Payments

Project Stability

Strong Sponsors Change of Control Restrictions Financial Viability

Control and Oversight

Regulation Framework Change in Law Public Interest

Privatization Objectives - Concessionaire

Fair compensation to Investors for Risks Commercial Case Reliable Business Case Competitive Debt Financing Transparent and Predictable Regulation that covers Risk Based Cost of Equity and Debt Servicing Concession Period Long term Commitment of Government Legal and Political Stability Competing Airports Government Support for Security, ATC, Services Media and Public Perception Cost of Operation Independent Regulator or Concession Based Regulation Transparent and Predictable Commercial Expectations to be honored Non-Utility Based Risk coverage of Cost of Equity Ability to Service Debt Financial

Stability

Operations

Regulation

Privatization Objectives - Lenders

Clear Regulatory Framework Sound and Viable Concession Predictable Revenue Streams Debt Servicing Ability Compensation and Termination

Bankable Propositions

Experience and Ability Stable Shareholding structure Financial Strength

Sponsors

Other Issues

State of Airline Industry Direct Agreements Ability to manage capital cost and timelines

Delhi Transaction Agreement

30-year concessions agreement with a further 30 year option A mandatory Capital Expenditure program (key projects) to be completed by March 2010 Massive liquidated damages for non-compliance Objective and subjective service standards Aeronautical charges currently as per AAI rates. In future, an independent regulator (AERA) to decide Limiting the use of land for non-Aero purposes to 5%. Retention of all staff initially and then of a significant number even after 3-years. ATC would still be under the control of AAI/DGCA. First right of refusal, if within 10% of best bid for a second airport within 150 km.
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Government Support (SSA, SGSA)

Passenger Service Fees Entitlement of Facilitation Component (35% of Fees) Tariff Increase as per SSA Schedule 1 Hybrid Till Clearances Assistance to take early clearances. Single window clearance mechanism. GOI Services Customs, Immigration, Security, Meteorological etc. ROFR Right of first refusal in case of new airport within 150 km radius. State Government Support Land availability for development, surface access to Airport, supply of Utilities, Clearances

Lifeline of Delhi Airport Project

Delhi Overtakes Mumbai as the busiest airport in India FY 2011 Start of New Dom. Terminal Ops April 2009 Upgrade of Intl. Terminal Complete Jun 2008 Award of Contract Jan 2006 Takeover of Operations May 2006 3rd Runway Ops begin Nov 2008 Terminal 3 Commissioning July 2010

Issue of RFP April 2005

Intl. Terminal Foundation stone & renovation causing passenger Financial Supreme Court inconvenience closure for T3 Clearance 2008 Feb 2007 Sep 2006

Baseline

AAI approves modernization proposal June 2003

Court Case on the Bid Decision Feb 2006

Delhi Airport Project - Highlights

Development plan overview over five phases
Phase I Completion date Pax capacity (mm) Cargo cap. (mm tons) Runways PTB area (mm sqft) 2010 60 0.5 3 5.5 Phase V 2035 100 3.6 4 17.2

Master development plan

Terminal 3
A Existing international terminal building B New integrated terminal building (T3) C E New runway Land bank (250 acres) D Existing domestic terminal A D

Terminal 1D
B E

Key contracts awarded Design engineers: Mott McDonald, UK Project management consultants: Parsons Brinckerhoff, USA 3rd runway and Terminal 3: L&T
C

Phase 1A Completed in mid 2008

Phase 1B Completed in Mar 2010

Third Runway (4,430m) Taxiways, fire stations, associated infrastructure Upgrading of international terminal New interim domestic terminal, T1D already commissioned

Terminal building (built-up area ~5mm sq fleet) 78 aerobridges High speed rail link Multi-level car parking (4,300 lots) General aviation facilities expansion/upgrade of utilities

Timeline Challenges

Airport London Heathrow Madrid Bangkok Kuala Lumpur Beijing Delhi T3

Capacity, mppa 28 42 45 25 43 34

Floor Area, sq m 353,000 757,000 563,000 479,000 900,000 502,000

Construction Period, months 72 70 60 54 52 37

Source: Jacobs Benchmarking study, 2009

OMDA Standard Challenges

Minimum Connect Time

Domestic/International 60 Minutes International/International 45 Minutes

90% of all Passengers served by fixed bridges 95% of Passengers wait less than 10 minutes at each of Immigrations, Security and Customs facility Maximum queuing time at check in less than 20 minutes and 5 minutes for Economy & Business Class respectively 95% of passengers take less than 45 minutes for arrivals

OMDA Standard Challenges

Seating for 80% of Gate Lounge Population Domestic First Bag 10 minutes, Last bag 30 minutes, International First bag 15 minutes, Last bag 40 minutes Car Parking
Average time taken to find parking space 95% of drivers take less than 5 minutes Average time depart airport from parking space 95% of drivers take less than 5 minutes

Taxis
Maximum waiting time 95% of passengers wait less than 3 minutes

Project Cost Variation

The Initial estimate was based on certain scope which has undergone many changes thereafter because of growth in traffic and change in specifications.

For Project cost to be finalized, first we need to have all drawings in place. These drawings would have needed anything from 9 months to a year to be finalized. Thereafter they would have gone for bidding which could have taken anywhere up to 6 months to finalize the construction contract and the Project cost.

Since there was no time available in view of ensuing commonwealth games a parallel build and design philosophy was adopted.

As such all the numbers shown as project cost are costs visualized at that stage.

The initial project cost was based on limited number of drawings and was preliminary in nature. In this scenario, unless major packages were awarded, DIAL was not in a position to realistically estimate the project cost revisions.

Project Cost Variation

Figures in Rs. Crores
Description T1, T2 & initial CWIP Runway/taxiway/apron/ lighting Terminal 3 and Associated Buildings Airport Services Building & Airport Connection Building Preliminary, Preoperative & IDC Metro Upfront payment to AAI Rehabilitation of Runway 10-28 Delhi Jal Board infrastructure funding New ATC Tower with Equipment Security Capex Total 8,975 1,279 350 150 Initial Estimate 762 1,765 4,669 Firmed Up Cost 754 2,634 6836 160 1,320 350 150 110 54 350 139 12,857 Variance (8) 869 2,167 160 41 110 54 350 139 3,882

Project Cost Variation

Figures in Rs. Crores
Sl. No a) b) c) d) e) f) g) h) i) j) Particulars Area/ Volume/ Specification Variance Material Price Variation Other Items Addl. buildings (Airport Services Building +Airport Connection) New ATC Tower with Equipment Runway-10/28 Rehabilitation Delhi Jal Board Preliminary Preoperative & IDC T1, T2 & other CWIP Security Related Total Total 1,446 973 617 160 350 110 54 41 (8) 139 3,882 2,167 869 Terminal 3 1015 705 447 Airside/ Landside 431 268 170 160 350 110 54 41 (8) 139 846 Others

Benchmarking by Jacobs
Terminal 3 is the most capital efficient and economical amongst comparable Terminals
Overall Cost Parameters BKK Bangkok Terminal Size (MPPA) Actual Cost Total Actual Cost (in million 2,800.00 1,600.00 3,800.00 4,100.00 2,948.20 1,659.90 2,874.10 US$ and documented) Actual cost per mppa (in million US$) Actual Cost / m2 of GFA (in US$) 62.20 64.00 88.40 146.40 $70.20 $48.80 67.10 Second KUL Kuala Lumpur PEK Beijing LHR London MAD Madrid DEL Delhi Median Result

Lowest

4,973.40

3,337.5 4,222.20 11,614.1 3,894.60 3,306.50 4,058.40 Adjusted Cost

Lowest

Adjusted Total Costs (in 2008 million US$) Total Cost / mppa (in 2008 million US$)

3,354.90 3,079.50 4,213.10 4,151.20 3,353.90 2,496.30 3,354.40

Lowest

74.60

123.20

98.00

148.30

79.90

73.40

88.90

Lowest

Total Cost / m2 of GFA (in 5,959.00 6,423.60 4,681.30 11,759.0 4,430.60 4,972.60 5,465.80 2008 US$)

Third

Means of Finance
Figures in Rs. Crores
Particulars Equity-Shares Allotted Equity-Share Application Money Internal Accruals Lease Deposits / Trade Deposits Rupee Term loan External Commercial Borrowing (ECB) Development Fee (Incl additional) Total Financial Closure 1,200 50 2,739 3,650 1,336 8,975 Final Amount 1,200 1,250 50 1,471 3,650 1,616 3,620 12,857

Delhi Airport: Maximizing Value Through Suitable Joint Ventures

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Joint Ventures Joint Venture & Demerger

Partner with third party to off-load assets/asset creation obligation and consequential financing burden. JVC obligated to arrange and manage financing. Upfront security deposit from JV. Collected c.USD 115 mn of security deposits Vs c.USD 45 mn of investment outlay. Revenue Sharing as % of Gross Sales. USD 440 million of assets/asset creation obligation off books. Long term valuation creation through equity holding.
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Funding Challenges Long &the debt together Funding Putting Short terms
Rupee Financing
INR 36,500 million commitments Consortium of 10 Rupee banks. Limited exposure for each bank Moratorium of 5 years with door to door commitment of 17 years Ease of disbursement

USD Financing
USD 350 mn commitment 7 international banks in consortium of 8 banks 5 year moratorium with door to door commitment of 13 years No disbursement for 1.5 years due to global financial meltdown Decision to replace international banks with domestic banks for USD borrowings Cost of borrowing increased from Libor + 175 bps to 475 bps

Short term bridge loans

Gap funding to meet the ECB delay Lower financing cost @7% to 9.5% Bullet repayment in 6 months from date of disbursement

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Comfort to Lenders
Share Pledge Agreement Non Disposal of Shares and Safety Net Arrangement Agreement Deed of Hypothecation Airport Operator Direct Agreement Assignment of Insurance Policies Substitution Agreement 30% Pledge over shares 21% NDU over shares

First charge on all the revenues / receivables First charge/assignment of all the rights; titles, permits, etc. of the Project Document In the event of default lenders can substitute operator with some other entity. GoI guarantying transfer payment shortfall in the event AAI doesnt pay.

GOI Guarantee as per SSA

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Funding Challenges 2008 Credit Crunch Delhi Airport 2008 Credit Crunch
Early 2008 T1 & T2 under operations Modernization and new integrated terminal T3 Under construction World record time lines-37 months Contracts awarded at peak in 2007 Design & Build process Cost plus Financing tied up Dec 07 Indian & Foreign Lenders 46% Committed revenue share Traffic increasing at steady pace Int Pax @9% , ATM @5.62% No regulator in place Land Bank of 250 acres-partly to be used for financing modernization and expansion Airlines flourishing - New flights, destination added

2008 End Challenges on both top & bottom line Traffic declined Real estate market crashed leading to fund gap of $ 400 mn ECB draw down held up $350 mn Inflation causing project cost over runs Committed revenue share payment to AAI Maintenance of highest service standards irrespective of cost Delay in DF approval
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Land Monetization Land Monetization

Pure land monetization instead of self-development Upfront deposit 3 times Avg. Annual Rentals vs 6 years AAI requirement Mid 08, bid open for 45 acres land monetization Un favorable response from market - deferred for 15 acres Realized better rates higher by ~30%

Asset Areas First Round Second Round Total

Area in acres 30 15 45

Advance Lease Deposit USD Mn 186 134 320

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Delhi-Securitization of Development Fee (DF)

Passenger type Domestic Sectors International Sectors Period Aggregate Amount Tickets purchased in INR (including taxes & levies) INR 200 per departing pax INR 1,300 per departing pax 36 months effective 01 Mar 09 ~ USD 400 mn first tranche (NPV basis)*

DF approval by Government to fill funding gap from funding from Land monetization Separate revenue stream securitized to bridge financing gap without impacting long term debt/equity or DSCR. Consortium of 7 Indian banks Repayment of securitized loan from DF collections

*Second tranche of DF is pending regulator approval

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Delhi Airport: Creating world-class capacity for Indias busiest airport

Brief project overview
Concession period of 30 years + option for another 30 years at the option of DIAL 45.99% revenue share with AAI 5,100 acres of total land available for operations and development ROFR till 2036 for a second airport within 150 kms of the existing airport ROFR with the existing consortium partners in case of exit by an existing partner
10.0% 10.0%

Financing (USD bn)

Consortium partners

26.0%

54.0%

T3 key project features

Land side facilities 168 check in counters Multilevel Car Park Facility for 4,300 cars & Surface Parking 2300 cars Retail area of 30,000 sq. m
Airport Changi Airport Singapore (T3) Heathrow T5 London, UK Beijing Airport New terminal for Olympics T3, China IGI Airport T3, New Delhi, India Capacity 22 Million 25 Million 45 Million 34 Million Time 76 months 60 months 60 months 37 months

Key recent developments

Air side facilities 75 Aerobridges 48 contact stands 9 remote parking stands Completion of Phase IA ahead of the planned schedule Construction of Terminal 1D, and up gradation of 1C, 1D & T2 completed Longest runway in the country New runway (CAT 3B lighting for landing at 50m visibility, can accommodate A380s) and taxiways completed 6 months ahead of schedule Phase-IB: Development of New Integrated Terminal (T3) complete Installation of aerobridges, travelators, baggage handling and cooling systems completed Contracts for duty-free/retail awarded for T3; other major nonaero contracts awarded

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Operational Challenges
Challenges Loss of Job for govt. employees Mitigation Retention of all staff initially and then of a significant number even after 3-years MoCA, AAI, BCAS, DGCA, Airlines, Electricity, Water, Environment, Health, CISF, DDA, NHAI, HUDA, Cargo, Customs, Cargo, Agriculture, Oil Cos., Metrological etc. Educating and accounting various organization. Winning the trust Educating of OMDA rights Educating of global practices

To get in sync over 50 agencies

SLAs with govt. operated activities like ATC, Customs, Security Negative perception of Joint Ventures

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Operational Challenges: Constant endeavor to improve passengers experience

Ranked 101st (out of 101) in 2007 ranked 12th (out of 154) in 2010 airports worldwide

ASQ Score

Commercial operations from T1D begun in April, 2009

Commercial operations from T3 International operations from Jul10 & domestic operations from Nov10

DIAL received accolades from GoI & travelers for efficient airport operations during evacuation of Indian nationals, many without valid travel / citizenship documents, from Egypt & Libya

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