GMR’S bid to monetise 2m sq feet at IGI Airport could be a damp squib

With a couple of big mall developers unlikely to put in financial bids, GMR Infrastructure’s auction to monetise 2 million sq ft of space at Delhi’s Indira Gandhi International Airport could turn out to be a damp squib, people familiar with the development told FE. Both the mall builders had qualified at the request for qualification stage.

What appears to have given players cold feet is the fairly large investment needed, an estimated amount of nearly Rs 2,000 crore.

In April, five companies were in the race to sublease this land parcel, including Mumbai-based retail majors Phoenix Mills and K Raheja Corporation. DLF, Bharti Land, the development arm of Bharti Realty, and private equity fund Xander were the other bidders.

“The asking amount appears too large to justify land that comes with no ownership and land title,” one developer observed. A back-of-the-envelope calculation pegs the upfront payout at approximately Rs 350 crore, and construction cost at a minimum of Rs 1,000 crore. In addition, there would be periodic land and interest payments, the developer explained. At these costs, at least two developers that own and operate large malls were unsure of how viable the venture would be even though the location is promising.

FE learns no reserve price has been set and that each participant can fashion its own offer.

Nevertheless, the initial lease is for a period of 20 years, with the probability of an extension for another 30 years. A percentage of the estimated average rent for 10 years needs to be paid upfront and the remainder in staggered instalments.

Pankaj Renjhen, managing director, retail at JLL India, pointed out that unlike other land deals, payment for a sublease arrangement would be for a longer tenure, a big advantage to developers. However, the financial structure doesn’t seem to have appealed to some companies. That’s probably because a mall of such scale could take four or five years to be built before which there will be no cash flows.

Subleasing, a well-established and popular way of executing infrastructure and hotel projects, is relatively new to the retail space. Renjhen points out that while it is a tried and tested arrangement overseas, it has been used just once in India: Pacific Mall is built on subleased land.

For debt-ridden company GMR Infra, it is important to monetise the land. While JDAs or joint development agreements are now in vogue — at least in the residential piece — it could be an option in the mall development space too if bidders are uncomfortable with the sublease format.

However, that won’t help GMR too much as JDAs are merely profit- and revenue-sharing arrangements. GMR won’t be able to bill the land. But the company can develop commercial assets like hotels and offices on the plot as well.

GMR Infrastructure did not respond to FE’s email inquiring about the status of the auction and whether the company has explored any other possibilities to develop the land. The proposed mall is meant to cater to airline passengers as also to nearby residents although bidders say there are no residential catchments in the vicinity of 6-7 km.

The proximity to hotels located at the airport’s Aerocity development makes it an attractive retail location but developers are not sure a 2 million sq ft mall can be profitable.

Arvind Singhal, CMD, Technopak, said the location is well connected to south Delhi and Dwarka via the expressway and so there could be meaningful footfalls.

Currently, most successful malls in the country are no larger than 1 million square feet and a mall twice that size is uncharted territory. DLF Mall of India, which is comparable to the one proposed, opened just last month and is too new to provide evidence.