Welcome to the Groupe ADP announcement. The conference is now open, and I leave the floor to Cécile Combeau, Head of Investor Relations.
Thank you. Good morning, everyone. Thank you very much for joining us on such short notice. Chairman and CEO, Augustin de Romanet, and CFO, Philippe Pascal, are here with me to comment the announcement we made yesterday evening. We will then open the line for Q&A. I would like to kindly ask you, please, to limit your questions to one or two per analyst. This is to allow a greater number of you to dialogue with the management. With that, I would like to draw your attention to our usual disclaimer related to forward-looking statements, which is on page 15 of our presentation. Now, let me hand it over to our Chairman and CEO, Augustin de Romanet.
Thank you, Cécile. Good morning, everyone. It's a pleasure to be with you all today early this morning. As you saw in our disclosures yesterday night, we are initiating a new and very important step in our presence in India. Three years after our acquisition of a stake in the Indian Group GMR Airports, or as we call GAL, we are accelerating our initial plans to have listed assets. This is why we are initiating today a process aiming at a merger by the first half of 2024 between GAL and GMR Airports Infrastructure, which we call GIL. GIL, our partner holding 51% of the capital of GAL, is listed on the Indian stock exchanges, both Delhi and Mumbai.
GAL, which we own at 49% since 2020, owns major airport assets, as reminded in this slide, and acts as a platform for the development for Groupe ADP in South and Southeast Asia. This region shows a very dynamic air traffic recovery and a strong need of airport infrastructure development. In the post-COVID world, we see a good window of opportunity for future profitable growth there. You are aware that the Indian government has announced series of privatizations, for instance. Together with our partner, we want to be in the best possible position to seize these opportunities. As you can see on this slide 3, this merger operation has been built to achieve one main benefits. The first one is to simplify and clarify the capital structure. It allow investors to access to the company which is holding directly the airport assets.
This would have been a sufficient reason to do the deal. We have two other interests to do the deal. The first one is that it's fully revealed the value of GAL through a direct listing, and it provide liquidity to the stake held by ADP. Also, it creates an agile platform to capture new development opportunities in India and in South Asia. The framework agreement we have signed initiates a process leading to the merger of GIL and GAL by the first half of 2024. This agreement provides two strategic characteristics. The first one is that Groupe ADP will hold strong economic interest in the new merged entity called New GIL, maintaining our exposure to future profitable growth in this region.
The second one is that, thanks to a shareholder agreement, Groupe ADP will be entitled to extended rights in New GIL's governance, similar, I insist, similar to those held currently in GAL, hence preserving its significant influence and ability to pursue their mission to create value for our stakeholders. I now leave the floor to Philippe Pascal, who will go through the details of this operation.
Thank you, Augustin. Good morning, everyone. Let's move on to slide 4, which shows the currently sharing structure of GMR Airports. The contemplating merger will be between GAL, in which we are shareholders, and GIL, our partner, listed on the Indian stock markets. GIL is currently the controlling shareholders of GAL. ADP currently own 49% of GAL. Upon merger, Groupe ADP will therefore become the shareholder of New GIL, a listed company sharing ownership with GMR Group and public investors. Remember that until 2021, GIL used to be a conglomerate. Since beginning of 2022, the non-airport asset previously held by GIL has been demerged into another company called GPUIL, GMR Power and Urban Infra Limited. As a result of this demerger transaction, the assets of GIL are now only airport activities.
The framework agreement announced today includes different tools reflecting our strategic approach for this participation and our partnership with GMR Group. First, strengthening the balance sheet of GIL. That is a huge target. As of today, GIL continue to carry some residual contingent liabilities which are non-airport related. According to our agreement, and this is a condition precedent to the merger, these residual contingent liabilities will be reduced to a minimal level, and Groupe ADP will become shareholder of the unlisted entity with no exposure to such liabilities. To accelerate this step, Groupe ADP will subscribe to Foreign Currency Convertible Bonds, FCCB, issued by GIL for an amount of EUR 331 million. This loan will be used by GIL to clear its balance sheets. We have implemented the appropriate mechanism to fully secure the repayment of this loan.
Remember that FCCB are a loan, not a new equity injection. We get our money back, and we have a strong remuneration for that. The second point, is to maintain a substantial level of economic interest in New GIL based on independent valuation exercise and, supported by a fairness opinion, ADP would hold 45.7% economic interest upon merger. This calculation takes into account a liquidity premium to GIL shareholders and includes the early settlement of the ratchet agreement upon in 2020. It's a global approach. Third point, we want to keep our multi-local approach to international development and preserve the local nature of GMR Airports. To do so, GMR Group would remain the controlling shareholder of New GIL. For that purpose, we will segregate our shareholding into two categories of instruments.
First, the ordinary equity shares, and second, the Optionally Convertible Redeemable Preference Shares, or called OCRPS. OCRPS is an equity instrument, and we have a right of dividends. This will allow Groupe ADP to maintain its economic exposure, as just stated, while positioning our partner, GMR Group, as a controlling shareholder and largest holder of ordinary share. We maintain, with that specific tools, our multi-local approach. Last, but certainly not the least, we will retain the extending government right we are currently entitled to by adjusting the current shareholder agreement with GIL to become an agreement with GMR Enterprises. ADP will maintain its significant influence, as Augustin said just before. Moving on to slide six, we illustrate the contemplating shareholding structure and our economic interest in the New GIL, which will be listed on the Indian stock exchanges.
On the left, you see the shareholding structure in terms of ordinary shares. You see that GMR Enterprises, GMR Group, will remain the controlling shareholder in the New GIL. On the right of the slide, we take into account the OCRPS because we are entitled to dividends. As you can see, Groupe ADP will maintain a significant exposure to growth with a 45.7% economic interest in the New GIL compared to our current 49% in GAL. In spite of the change in our economic interest, the underlying value for ADP is actually equivalent or even higher. Why is it equivalent, and what is a good deal for ADP? Because our stake in the New GIL will be a liquid one. We will become shareholder of a more agile company with a balance sheet able to seize growth opportunity in Southeast Asia.
Last, we see virtue in having a listed company because it provides transparency in the company financial and its governance. Let's move to slide 7 with the expected financial impact of the operation. Looking first at what happens before the merger. Upon subscription, meaning in the coming days, the FCCBs will be accounting at fair value as financial assets in Groupe ADP balance sheet. Their subscription will lead to a cash expense of EUR 331 million in the coming weeks. The earnouts being already provided for the settlement will be net roll in the P&L. We will have a cash expensive of EUR 62 million to be paid by installments before the merger. Second point, looking at what happened at merger completion in 2024. We will record a P&L charges.
This is no cash reflecting the change in ADP's economic interest, including the ratchet settlement and the liquidity premium. This impact will be determined at merger date. It is currently estimated at around EUR 100 million. Overall, this operation is fully in line with the Group strategy of a selective international growth by facilitating the future development of GMR Airports. We confirm both our net debt-to-EBITDA target of 3.5-4.5 times EBITDA in 2025, and our dividend policy with 60% payout ratio and a minimum of EUR 3 per share for the 2023-2025 period. On slide 8, we can see an indicative timeline of the process. The [mergers team] will go through several regulatory boards, creditors and shareholders approval and is expected to be complemented during the first half of 2024.
I will now give back the floor to Augustin on the outlook this operation will open for our assets. Thank you.
Thank you very much, Philippe. I will be very short to conclude, but I would like now to give you a few comments on the general outlook of our Indian investment on slide 9. Everybody knows that India's population is growing fast, and especially its middle class. This will translate in a sharp increase in air travel, which will be possible thanks to the development of the appropriate infra. You can already see Indian airlines preparing for this growth with very large aircraft orders. We want to be ready, and we are convinced that the New GIL, deleveraged, agile, pure player company listed on the Indian stock markets will be in prime position and in better position to size these additional development opportunities in the privatizations to come in India and in Southeast Asia.
Next slide shows you that our development strategy is built on a unique network and unique model consisting in Groupe ADP itself, listed in Paris, and two regional seats, two regional development platforms. The first one, historically speaking, is TAV Airports, which is listed in Turkey and operating in the Middle East and Africa. The second one is GMR, which will become transparent, easier to follow, and a more agile platform in India and Southeast Asia upon the merger initiated today. The development of these two fields will support the profitable growth of the Groupe's international footprint. We expect international activities, including GMR, to contribute to up to half of our operating income by 2035, so in 10 years only.
As a global and multi-local player, we will thus pursue our ambition to create value for all stakeholders, putting decarbonization as a common objective in all our airport platforms. With that, Philippe and myself will be happy to answer to your questions. Mr. Operator, would you please open the line for Q&A?
Sure. Thank you very much. Ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad. In the interest of time, we kindly ask each analyst to limit yourself to a maximum of two questions only. Thank you. We will now take our first question from Cristian Nedelcu at UBS. Your line is open. Please go ahead.
Hi. Thank you very much. Maybe the first question, post the merger, could you tell us how does the balance sheet of GIL look like? I think today the entity has around EUR 2.5 billion of net debt and around EUR 300 million of EBITDA, so it's a high single digit net debt EBITDA. How does this look after the merger? Secondly, just a technical point, I think if I understand well, the public shareholders move from 20% ownership in GAL to 34% capital and 27.3% economic interest. Could I explain exactly what happens here? Do they contribute? Is there an equity issue associated here? If I understand well, some of the shares will not pay a dividend because the 34% capital is higher than the economic interest. Thank you.
Thank you for your question. I'll take, I'll start by the second question. You can see slide 6 in our presentation. The both illustration and shareholding structure first, in the left and the economic interest in the New GIL in the right. In fact, in India, we need a minimum of 25% in the public for a listed company. When you see the contemplated shareholding structure, we can see that for the listed company, public own 34% at the end of the day. 33.7% for GMR Group and 32.3% for IL&FS. Globally a good balance.
In fact, in the economic interest, when we take account the OCRPS, that is a specific share, we have some economic interest in the global result of the New GIL. We have to add our 32.3%, that is in the listed company, plus the dividend named by our specific OCRPS, that is for around 19.7% in a fully diluted basis. Globally in the interest we have 45.7%. For the public, we can see that public in the economic interest have around 27.3%.
We have some footnote in this slide that is very important to understand the perimeter to calculate the percentage of each share because obviously, in the shareholding structure for just for the listed company, we don't calculate in the same manner, but in the economic interest with the full impact. For the second question. Your first question about liability. There is currently a legacy of some loans and warranty on GIL balance sheets, which are related to its sister company, that is GPUL, the non-airport business after the demerger at the beginning of 2022. The FCCB sub-subscribed by IL&FS will allow to accelerate the settlement of both non-airport liabilities.
We have still some liabilities in, after the, all the clean effects. They are globally small for less than EUR 130 million. For these liabilities we have a specific guarantee. Also in the swap ratio, we take accounts these liabilities when we merge the company to establish, to fix our shares. Thank you for this first question. Another question?
Thank you. Thank you. We'll now move on to our next question from Dario Maglione at BNP Paribas. Your line is open. Please go ahead.
Hi. Good morning. Two questions from me. First one, what is the size of the contingent liabilities at the moment before the merger? The second question regarding the 45.7% economic interest.
We don't hear you.
The line got disconnected from his end. One moment, please. There are no further question in queue right now while we wait for him to come back. Once again, ladies and gentlemen, if you would like to ask a question, please press star 1. Kindly be reminded, this is limited to two questions only. Thank you. We've got, Cristian Nedelcu once again. Your line is open. Please go ahead.
Thank you very much for taking my follow-up. I think mainly just on the voting rights. I think your voting rights go to 32%. Does this mean that your influence in GMR decision making decreases in any way? I know your economic interest remains 45.7%, but your voting rights go down to 32%, if I understand well. Thank you.
Thank you for this question. For your second question, we preserve all our shareholder agreements, and so we preserve our significant exposure despite in fact, we, in term of voting right, have a decrease. Our shareholder agreement is very strong and all our rights.
Veto rights.
Veto rights and so on, reserved matter, all is preserved. We have the same shareholder agreement and the same right compared to the current structure in GAL.
If I can, if I may add, I'm Augustin de Romanet. If we didn't do this merger, the process lead us to an usual IPO. In this usual IPO. We should have lost all our governance rights, or anyway we should have renegotiate our governance rights. It means that with this operation, first one, we maintain our governance rights without any change since the agreement of 2020. We create a listed company which allows us to reveal the value and to clean all the liabilities. For your first question about contingent liabilities. Before the merger, we have three kind of liabilities. First, it's around EUR 250 million liabilities, cash and EUR 250 million non-cash liabilities. The third, it's the FCCB of Kuwait Investment Authority that GMR has to close. Thank you for your question.
Thank you. We'll now once again take our next question from Dario Maglione at BNP Paribas. Your line is open. Please go ahead.
Hello, good morning. Can you hear me now?
Yes, perfect.
great. Yes. The second question that I had was around the 45.7% economic interest. Just wanted to understand. You will get the percentage, the 45.7% of the dividend in case the convertible bonds is converted or even if it's not converted?
No, We preserve our dividend in, before or, and after the conversion.
Okay. Regardless of whether the bond is converted or not?
Yes.
Okay. Maybe follow up on what you mentioned about the residual contingent liabilities. You mentioned EUR 250 million cash, EUR 250 million non-cash, and then, a convertible bond for the Kuwait Investment Authority. How much is that for?
How much is that?
What is the size? What is the value, that you are, kind of declaring?
For the Kuwait investment, FCCB, it's around $300 million.
Okay, thanks.
Thank you. We'll now move on to our next question from Nicolas Mora at Morgan Stanley. Your line is open. Please go ahead.
Yes, good morning. Sorry, good morning, guys. A couple of questions for me as well. Just on the convertible bond and the OCRPS preference shares. What is the maturity of each of the instruments? At the end of the day, do you actually intend to convert or you are just not going to convert except in very special cases? That's the first question. Number 2, jumping on the question on the balance sheet of GIL and potentially the New GIL, which seems quite leveraged. I mean, you talk about opportunities to grow. How can you square the debate? I mean, how can you grow with such high leverage in the short, medium term? Thank you.
Thank you for your question. Also in the first question. The maturity of FCCB, it's 10 years maturity, but we have some room of maneuver and GMCAC can if it's possible, and we have also a condition precedent about that, convert before. Repaid or convert before the termination of 10 years. For the OCRPS, the maturity, due to the fact that it's a specific OCRPS before the listing of the company, we have a maturity of 20 years. At the end of the day, we can manage the conversion, and we can convert, ADP can convert, at the end of 20 years automatically without a special element.
In the balance sheet, our capacity to de-leverage the company and to accompany the growth in the Indian airport market. As you know, we are in a very dynamic region and obviously, we have to accompany the growth of Indian market through CapEx, but also to try to be able to catch some opportunities. For that, we have to de-leverage this company. That is possible, first, to reduce our debt through the combination of minority stake monetization. The good example is the Cebu operation that we at GMCAC sold this asset.
We have also the second pillar that is a cash flow inflow increase with activities with lighter capital needs, services, retail and duty-free. By becoming a listed company, GMR Airports will be a broader financial option, greater transparency, will notably provide the possible access to a wider range of foreign banks, which is not the case for the moment and for private company. At the end of the day, we believe that we will be with this New GIL company with a very simple structure, more agile, we can decrease the cost of our debt, and we can also be more agile if we have a good opportunity in the future. Thank you, Nicolas.
Thank you. Once again, ladies and gentlemen, if you would like to ask a question, please press star 1 and please be reminded this is limited to a maximum of two questions only. We'll now move on to our next question from Graham Hunt at Jefferies. Your line is open. Please go ahead.
Thanks very much. Just one from me, actually. The governance rights that you spoke about that have been extended with this new shareholder agreement, could you just provide any color on anything specific that you are focused on retaining versus your current rights that you hold? Thank you.
As Augustin said, we preserve all our shareholder agreements, ADP is in a position of significant influence with governance rights allowing, in particular, to have a say on investment decision. ADP is in a solid position and can block some initiative which will be unreasonable according to ADP's criteria. The shareholders' agreement with GMR provide for an equal number of seats at the board for ADP and for GMR. In addition, ADP will hold several position within the executive management of the New GIL. We can stop, we have governance rights, we have board member, we have executive management, and at the end of the day, we have also a strong confidence in GMR management.
Yes, to be precise, we didn't say in our previous answer that we extend our governance rights. We did say that we maintain our governance rights, it was important because in the process happening with the usual IPO in one or two years, we should have renegotiate all the governance rights. With this operation, which is an anticipation, we obtain from our partner, GMR, to keep our governance rights for all the future. It means with no issuance, which is very important because it's a better position than if we had to renegotiate.
Thank you for this question.
Thank you. We'll move on to our next question from José Arroyas at Santander. Your line is open. Please go ahead.
Hey, good morning. Just one question, please. I have a question on the Foreign Currency Convertible Bond. In the press release, there is an infogram, I think it's the third from the left, that says that, or suggests to me that this bond can be converted into an additional economic stake of between 5% and 8%. Can you confirm if I'm right to interpret it this way? If so, how does this mechanism work and what cost would it represent for ADP? Thank you.
Thank you for this question. Perhaps just before to answer directly to the question, we have to have in mind the FCCB approach. First, at the end of the day, we have four solution. First, ADP get reimbursed. The second point is we can convert FCCB into shares and sell the shares. The third solution, it's we have a put to GMR Enterprises, and they reimburse us. The fourth solution is to wait for maturity and convert them into shares at the end of the day. In fact, if GMR wants, it's possible for GMR to have.
Buyback.
To buyback and to convert. In this case, our share decrease to 45.7%- 33.5%. If we go to the maturity and we convert, and ADP converts the share, we can have, we can increase mechanically our shares.
Thank you.
Thank you.
Thank you. We'll now take our last question from Cristian Nedelcu at UBS once again. Your line is open. Please go ahead.
Yeah. Thank you very much. Just one. Is there any protection against future dilution if the new entity decides to issue equity to pursue growth, anything like that? Is there any protection there for your current ownership? Will you decide at that stage if you want to participate or not and finance that growth for the new entity? Thank you.
In any case, we have veto right, so we can stop if it's the deal is not in favor of ADP. We have a strong shareholder agreement, first point. The second point, remember that we can convert our OCRPS as in any case.
Thank you very much. Thank you.
Sorry. Thank you. We'll take our next question from Nicolas M ora at Morgan Stanley. Once again, your line is open. Please go ahead.
Yes. Hi guys again. Just giving you a try. Could you share with us the base valuation of GAL you've been setting this agreement upon?
No, not at all.
Thank you. That was a fair try.
Mm-hmm.
Thank you. As a final reminder, ladies and gentlemen, if you would like to ask a question, please press star 1 on your keypad now. Thank you. There are no further questions in queue. I will now hand it back to your host, Cécile, for closing remarks. Thank you.
Well, it's time to close this presentation. Thank you everyone for having logged on to our conference. We are looking forward to seeing you in all the coming days and weeks. Please don't hesitate to get in touch with me or Eliott in the Investor Relations team. With that, good day everyone.
Thank you. Ladies and gentlemen, this concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.