Monday, February 26, 2024

Adani Gets New Wings

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The acquisition of seven airports by the Adani group brings into question the government’s policy regarding privatisation and selling the family silver without consulting state governments.

By Shivanand Pandit

From a relative newbie to the second largest airport operator in India, Gautam Adani has touched new heights. He did this in less than 24 months after achieving a double hat trick by winning concession agreements for six airports Jaipur, Guwahati, Ahmedabad, Mangaluru, Lucknow and Thiruvananthapuram. Subsequently, he managed to acquire Mumbai International Airport Limited (MIAL) too. Collectively, these seven airports handled close to 80 million passengers in 2019-2020, which is approximately a quarter of India’s total traffic of 341 million.

On August 31, Adani said that Adani Airport Holdings will procure an impressive interest in MIAL and also take on the debt of GVK Airport Developers. As per the declaration by Adani Enterprises in the Bombay Stock Exchange, the group will implement measures to complete the procurement of 23.5 percent equity stake from Bidvest and Airports Company of South Africa in MIAL for which it has taken the permission of the Competition Commission of India.

The Adani group will eventually own 74 percent stake in MIAL and around 55 percent in the Navi Mumbai Airport project. At MIAL, GVK Airport Developers holds 50.5 percent share and Bidvest and Airports Company of South Africa possess 13.5 percent and 10 percent share, respectively. The leftover 26 percent is with the Airports Authority of India (AAI).

Nevertheless, the GMR group is the biggest airport operator in India. But it now faces an intimidating struggle due to Adani’s rapid rise. The southern-based GMR group operates Delhi and Hyderabad airports, which together handled around 89 million passengers in 2019-2020.

Earlier in 2020, the Ministry of Civil Aviation mentioned that dozens of airports were lined up for privatisation, including those in Raipur, Trichi, Varanasi and Bhubaneswar. Undoubtedly, the Adani group will be one of the favourites when the government puts up more airports for auction. Moreover, the deal will bring in Navi Mumbai Airport too and substantially supplement Adani’s growth.

It is now crystal clear that the Adani group has a vision for its airport wing. This is evident from the 2019-2020 annual report of Adani Enterprises which dec­lared that the company’s business model assures a hybrid revenue model, including aero and non-aero revenue structure. It also said that with the help of non-aero revenue, the entity plans to foster Airport Villages that can tap into non-passenger airport visitors.

The group has the right of entry to more than 226 acres and is confident about the momentous expansion potential. According to the undertaking, there is a golden opportunity to enlarge collective capacity to more than 100 million travellers in the next 10 years. Adani is marching towards this mark with the Mumbai airport deal. Currently, 136 airports are being operated by AAI and the number may reach 200 by 2040.

According to reliable sources, Adani may bring in Flughafen München GmbH, which operates Munich airport, to run Ahmedabad, Mangaluru and Lucknow airports. To boot, Ben Zandi, the former head of Fraport AG, which operates Frankfurt airport, joined the Adani group’s airports business in 2019.

Adani is also in the business of containerised and bulk cargo. While the Ruiasowned Essar group also has a presence in the port sector with eight terminals used for captive cargo, Adani has no equivalent rival among Indian entities. Adani’s evolution from a pure commodity player and exporter to a key investor in infrastructure began through ports and then port railways. The Gujarat Maritime Board gave permission to set up a captive jetty at Mundra in 1994. Gujarat Adani Port, which is a joint sector company promoted by Adani Port and Gujarat Port Infrastructure Development Company, was established in 1998. In 1999, a versatile terminal with two berths was operationalised and in 2003, Adani Port merged with Gujarat Adani Port. It expanded to set up single point mooring in 2005, which permits the operator to load and unload liquid cargo in the sea. The acquisition of Krishnapatnam Port Company Limited in Andhra Pradesh for Rs 13,500 crore by Adani Ports and Special Economic Zone Limited is a tactical fit for the Gujarat-based corporation.

Regardless of the rapid rise to power, Adani’s flight route will not be free of turbulence. There was strong opposition to the re-development of Thiruvananthapuram airport from the Kerala government. Chief Minister Pinarayi Vijayan even wrote a letter to the prime minister stating the government’s plan to lease out three airports, including Thiruvananthapuram, was against the wishes of the people. He said the central government had ignored frequent requests from Kerala for delegating the airport to a special purpose vehicle with the state as the chief patron.

Also, the Adani group has to face cut-throat competition mainly from the GMR group and Zurich Airport to win civil liberties for the forthcoming airports. In the past, Zurich Airport killed competition from Adani and Delhi International Air­port Limited, controlled by GMR, to win the rights to develop Jewar airport in Noida.

Coming to Mumbai airport, a confederation of overseas investors headed by Abu Dhabi Investment Authority Fund, India’s National Investment and Infrastructure Fund and Canada’s Public Sector Pension Investments served a notice on the GVK group. They said that the stake sale deal in MIAL to Adani was void and would be a breach or violation of the contract they had authorised in 2019. They also requested Finance Minister Nirmala Sitharaman to resolve the issue through the Insolvency and Bankruptcy Code. Although GVK clarified the reasons for termination of the deal with the foreign investors’ consortium in its intimations to the stock exchanges, the Adani group will have to consider the issue seriously and sincerely.

Covid-19 has locked the world and the aviation industry is not an exception to this. This has adversely influenced the financials of MIAL. According to the latest report of CRISIL, the entity has Rs 8,646.74 crore term loans, Rs 150 crore cash balance and Rs 110 crore unused working capital. CRISIL has also relegated the company’s projected Rs 2,000 crore non-convertible debenture issue. Considering the present state of business operations, the company is not in a position to engender handsome accruals. Also, it is not able to draw the cash balance in the escrow account because of an undecided ruling of the Delhi High Court regarding payment of annual fee. Besides, the company has impending debt servicing obligations of around Rs 65 crore on project loans within September 2020 and there is very limited discernibility on handling of accrued interest of approximately Rs 147 crore for the period of moratorium from March to August 2020.

So why was the government in a hurry here? In the US, most of the airports are owned by the government. Only a few are controlled by private players. America, which fundamentally trusts in free markets and liberalisation, is not keen on privatisation of airports. Although privatisation of airports has been supported by many, it has a dark side.

Firstly, private establishments have to shell out exorbitant funds to acquire airports and in order to recover the investment, they charge customers astronomically. Secondly, the probability of terrorist attacks is significantly high if the airport is owned by a private firm exclusively even though the government offers essential security and safety provisions. Contractual personnel in airports may compromise security in exchange for money. The 911 attacks are a testimony to this. Thirdly, corruption is rampant in India and politicians can manipulate the value of land and pocket a lot of money. Abroad, land usually is leased, not sold. Fourthly, privatisation of airports is hazardous for the self-reliant growth of the civil aviation sector of India and against the Atmanirbhar vision of the prime minister.

The government’s strategy of privatising airports has given birth to numerous misgivings about why it is eager to lease them out to Adani. What is the urgency and necessity to part with government property with a private corporate conglomerate? Why is the central government not following normal parameters and consulting state governments before privatising airports? These are questions that need to be answered before Adani is allowed to fly high.

—The writer is a financial and tax specialist, author and public speaker based in Margao, Goa

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