Monday, July 31, 2006
PPP is the way to go for infrastructure
Q&A Grandhi Mallikarjuna Rao, chairman, GMR Group
Grandhi Mallikarjuna Rao, 56, is chairman of the Bangalore-based GMR Group, a major player in the infrastructure, roads and power utilities sectors. Mr Rao — who is fondly called ‘Malli babu’ by people in his native Rajam town in Srikakulam district of Andhra Pradesh and G.M. Rao in industry circles — is an amazing success story in corporate India, growing from a small-town jute trader to the head of a Rs 2,500 crore business group.
The GMR group, as the leader of different consortia, is building the new international airport in Hyderabad, and is modernising the Indira Gandhi International Airport in New Delhi. The group has four power projects with a gross capacity of 963 Mw, of which two are operational, one is set to achieve COD and one is under development. It is also developing six projects. GMR Infrastructure Ltd is entering the capital market with a public issue, and expects to raise between Rs 800 crore-Rs 953 crore. The media-shy Mr Rao is a mechanical engineer by training from Andhra University.
How did it all begin?My family had a small jute trading business in Rajam, which my father divided between my brothers and myself in 1972-73. After my engineering degree, I had joined the Andhra Pradesh government’s public works department, but I worked there only for five months, before joining the business. I wanted to diversify my business, so I applied for a scooter dealership in Visakhapatnam, which did not happen. So, I renewed my focus on the jute trade, buying and selling the commodity.
Subsequently, with great difficulty, I managed to buy a jute twining factory in Chennai and moved the machinery to Rajam. I also got into the sugar and brewery business, all in Srikakulam district. Things changed for me when I was invited to join the board of Vysya Bank (now the ING Vysya Bank), after the banking regulations pertaining to board composition were changed in the early nineties.
The bank had two rights issues in the early nineties, which faced the prospect of not being fully subscribed. I invested in both rights issue, borrowing from friends and family, which made me the single largest shareholder in the bank. I first moved to Hyderabad, and then to Bangalore in 1994 because it was difficult to commute from Rajam to Bangalore, where the bank is based.
What prompted you to enter the infrastructure sector, given that in India the common perception is that the government should create infrastructure like airports and roads. Honestly, the focus on infrastructure began during my time with Vysya Bank. The bank had NPAs of 15.6 per cent, and I worked closely with the top management to reduce the NPAs to about 4.6 per cent. This entailed constant interaction with government, RBI and industry officials. The reduction in the bank’s NPAs gave us credibility, and, around that time, the power generation sector was being opened up to the private sector.
The GMR group set up two power plants — the 220 Mw Tanir Bavi project in Karnataka and the 200 Mw Basin Bridge. We will be commissioning the 320 Mw Vemagiri power plant soon. I believe that public-private partnership is the best way to develop the sorely-needed infrastructure in India.
After we decided to focus exclusively on infrastructure projects, the GMR group exited from all other business, including banking, insurance and brewery. The group’s other interest is in sugar, while the ferro alloys business has been given on a long-term contract.
But you did not have the track-record of building or modernising airports or laying roads. Or setting up power plants, for that matter. Do you believe that GMR has the bandwidth to execute such major projects?We have a very strong management team in place. More importantly, the GMR group always makes it a point to work with world-class companies. We have Fraport AG, one of the largest airport management companies in the world, which manages the Frankfurt Am Main airport, and Malaysia Airport Holdings Berhad, which manages the Kuala Lumpur International Airport, as our partners for modernising the Indira Gandhi International Airport in Delhi, along with Airport Authority of India. For the Hyderabad project, we have MAHB as a partner, while UEM, a Malaysian road management firm, manages our road projects in India.
The GMR Group developed expertise and management bandwidth during the nearly five-years it took for the signing of the agreement for the international airport in Hyderabad. For the Delhi and Mumbai airport projects, we worked with 16 international consultants, investing over Rs 32 crore, to draw up the bid.
Were you surprised when the government said the GMR consortium had emerged as the favoured bidder on various parameters? The GMR-led consortium was given the choice of taking up the modernisation and expansion of the IGIA and the Chhatrapati Shivaji International Airport in Mumbai. What made you choose IGIA?No, I was not surprised. We had put in a lot of hard work to make the bids. The consortium had also made a financial commitment of about Rs 4,000 crore even before the technical bids were opened, with ICICI Bank providing Rs 3,200 crore and PNB, Rs 750 crore.
The GMR group chose IGIA for two reasons. IGIA sits on 5,000 acres of land, so there is enormous scope for development. Also, under the contract, we can develop 250 acres of the land for commercial purposes. Delhi International Airport Private Ltd., the joint venture company which is modernising the airport, has the management contract for IGIA for 60 years. DIAL will be giving 46 per cent of its revenues to the government. IGIA currently has annual revenues of Rs 600 crore.
DIAL has already begun work on improving the facilities for passengers and air traffic. Under the first phase, DIAL will be investing Rs 2,800 crore. It will be building a common arrival and departure terminal spread over three million sft. The first phase will be completed by 2010, as per schedule.
What would be the status of the existing employees of IGIA?The airport has 2,300 employees, and under the contract we will retain 60 per cent of them. The first thing we did after DIAL got management control of IGIA was to bring in a change management firm to calm the anxieties of the employees.
Will the GMR group be bidding for the modernisation of the Chennai and Kolkata airports as well?Yes, of course. But right now we are focussing on building a world-class airport in Hyderabad, which we expect to complete in early 2008, and in New Delhi.
GMR Infrastructure Ltd., which is modernising Delhi airport, will hit the capital market on July 31, with its IPO to raise up to Rs 950 crore. The IPO comprises 3.81 crore shares at a price band of Rs 210-250. Retail inve-stors would, however, be given a five per cent discount.
GMR Infra would use the proceeds raised from the issue to part finance modernisation of Delhi airport and the greenfield Hyderabad international airport, besides in other power and infrastructure projects. The issue closes on August 4 and the listing is expected in September. At the upper limit of the band, the company would raise about Rs 954 crore and at the lower end about Rs 800 crore
Grandhi Mallikarjuna Rao, 56, is chairman of the Bangalore-based GMR Group, a major player in the infrastructure, roads and power utilities sectors. Mr Rao — who is fondly called ‘Malli babu’ by people in his native Rajam town in Srikakulam district of Andhra Pradesh and G.M. Rao in industry circles — is an amazing success story in corporate India, growing from a small-town jute trader to the head of a Rs 2,500 crore business group.
The GMR group, as the leader of different consortia, is building the new international airport in Hyderabad, and is modernising the Indira Gandhi International Airport in New Delhi. The group has four power projects with a gross capacity of 963 Mw, of which two are operational, one is set to achieve COD and one is under development. It is also developing six projects. GMR Infrastructure Ltd is entering the capital market with a public issue, and expects to raise between Rs 800 crore-Rs 953 crore. The media-shy Mr Rao is a mechanical engineer by training from Andhra University.
How did it all begin?My family had a small jute trading business in Rajam, which my father divided between my brothers and myself in 1972-73. After my engineering degree, I had joined the Andhra Pradesh government’s public works department, but I worked there only for five months, before joining the business. I wanted to diversify my business, so I applied for a scooter dealership in Visakhapatnam, which did not happen. So, I renewed my focus on the jute trade, buying and selling the commodity.
Subsequently, with great difficulty, I managed to buy a jute twining factory in Chennai and moved the machinery to Rajam. I also got into the sugar and brewery business, all in Srikakulam district. Things changed for me when I was invited to join the board of Vysya Bank (now the ING Vysya Bank), after the banking regulations pertaining to board composition were changed in the early nineties.
The bank had two rights issues in the early nineties, which faced the prospect of not being fully subscribed. I invested in both rights issue, borrowing from friends and family, which made me the single largest shareholder in the bank. I first moved to Hyderabad, and then to Bangalore in 1994 because it was difficult to commute from Rajam to Bangalore, where the bank is based.
What prompted you to enter the infrastructure sector, given that in India the common perception is that the government should create infrastructure like airports and roads. Honestly, the focus on infrastructure began during my time with Vysya Bank. The bank had NPAs of 15.6 per cent, and I worked closely with the top management to reduce the NPAs to about 4.6 per cent. This entailed constant interaction with government, RBI and industry officials. The reduction in the bank’s NPAs gave us credibility, and, around that time, the power generation sector was being opened up to the private sector.
The GMR group set up two power plants — the 220 Mw Tanir Bavi project in Karnataka and the 200 Mw Basin Bridge. We will be commissioning the 320 Mw Vemagiri power plant soon. I believe that public-private partnership is the best way to develop the sorely-needed infrastructure in India.
After we decided to focus exclusively on infrastructure projects, the GMR group exited from all other business, including banking, insurance and brewery. The group’s other interest is in sugar, while the ferro alloys business has been given on a long-term contract.
But you did not have the track-record of building or modernising airports or laying roads. Or setting up power plants, for that matter. Do you believe that GMR has the bandwidth to execute such major projects?We have a very strong management team in place. More importantly, the GMR group always makes it a point to work with world-class companies. We have Fraport AG, one of the largest airport management companies in the world, which manages the Frankfurt Am Main airport, and Malaysia Airport Holdings Berhad, which manages the Kuala Lumpur International Airport, as our partners for modernising the Indira Gandhi International Airport in Delhi, along with Airport Authority of India. For the Hyderabad project, we have MAHB as a partner, while UEM, a Malaysian road management firm, manages our road projects in India.
The GMR Group developed expertise and management bandwidth during the nearly five-years it took for the signing of the agreement for the international airport in Hyderabad. For the Delhi and Mumbai airport projects, we worked with 16 international consultants, investing over Rs 32 crore, to draw up the bid.
Were you surprised when the government said the GMR consortium had emerged as the favoured bidder on various parameters? The GMR-led consortium was given the choice of taking up the modernisation and expansion of the IGIA and the Chhatrapati Shivaji International Airport in Mumbai. What made you choose IGIA?No, I was not surprised. We had put in a lot of hard work to make the bids. The consortium had also made a financial commitment of about Rs 4,000 crore even before the technical bids were opened, with ICICI Bank providing Rs 3,200 crore and PNB, Rs 750 crore.
The GMR group chose IGIA for two reasons. IGIA sits on 5,000 acres of land, so there is enormous scope for development. Also, under the contract, we can develop 250 acres of the land for commercial purposes. Delhi International Airport Private Ltd., the joint venture company which is modernising the airport, has the management contract for IGIA for 60 years. DIAL will be giving 46 per cent of its revenues to the government. IGIA currently has annual revenues of Rs 600 crore.
DIAL has already begun work on improving the facilities for passengers and air traffic. Under the first phase, DIAL will be investing Rs 2,800 crore. It will be building a common arrival and departure terminal spread over three million sft. The first phase will be completed by 2010, as per schedule.
What would be the status of the existing employees of IGIA?The airport has 2,300 employees, and under the contract we will retain 60 per cent of them. The first thing we did after DIAL got management control of IGIA was to bring in a change management firm to calm the anxieties of the employees.
Will the GMR group be bidding for the modernisation of the Chennai and Kolkata airports as well?Yes, of course. But right now we are focussing on building a world-class airport in Hyderabad, which we expect to complete in early 2008, and in New Delhi.
GMR Infrastructure Ltd., which is modernising Delhi airport, will hit the capital market on July 31, with its IPO to raise up to Rs 950 crore. The IPO comprises 3.81 crore shares at a price band of Rs 210-250. Retail inve-stors would, however, be given a five per cent discount.
GMR Infra would use the proceeds raised from the issue to part finance modernisation of Delhi airport and the greenfield Hyderabad international airport, besides in other power and infrastructure projects. The issue closes on August 4 and the listing is expected in September. At the upper limit of the band, the company would raise about Rs 954 crore and at the lower end about Rs 800 crore
# posted by mashup @ 9:12 AM 
