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Boost for aviation! Bulk of Adani’s Rs 26,000 crore capital expenditure to be spent on airports business

Adani Enterprises commands a market capitalisation of over Rs. 23,145 crore (as on December 19) and reported a net loss of Rs. 10.06 crore for the quarter ended September.

By Anwesha Ganguly

The Adani Group might be a late entrant in the airports space but its plans are by no means modest; the bulk of the group’s Rs. 26,000 crore of capex, over the next five years, will be spent on the airports business. Earlier this year, the group entered the airport operations and maintenance space, by winning bids on privatisation of six airports operated by the Airports Authority of India (AAI). The group won the bids outbidding older players in the airport business like the GMR Group, which operates the country’s busiest airport in New Delhi.

It also outbid competitors in Ahmedabad, Lucknow and Mangaluru. For instance, its bid for the Ahmedabad airport was Rs. 177 (fee payable per passenger), while GMR’s was less than half at Rs. 85. The second highest bid from a consortium of National Investments and Infrastructure Fund (NIIF) and Zurich International Airport, came in far lower, at Rs. 146.

The group looks at generating revenue from airports “very differently,” and the bids are not aggressive if one accounts for non-passenger revenues, said Jugeshinder Singh, CFO, Adani Enterprises, the parent company of the group’s airports business. “Historically, the airport model has been propped on duty-free customers. For us that is not the case, we have bid as per our business case,” Singh said in response to FE’s query.

“To give you an example of Ahmedabad, the approximate passenger (footfall) is about 11 million, non-passengers visiting the airport is nearly 30 million. (Airports) is one of the key areas for us, and our efforts will be consumer focused — which means passengers plus non-passengers… We have bid only with relation to the per passenger bid to AAI, we do not pay anything for non-passengers… We will obviously be able to get some benefit of 30 million people visiting,” Singh said.

The group is waiting for more clarity on the revenue-sharing models of the airports before finalising a funding strategy, Singh said. “As per the airport concession agreements, as has been outlined, we are obliged to spend approximately Rs. 7,000 crore airport capex, plus there is the upfront payment that we have to make to AAI,” Singh said. He expects to have further clarity on the revenue-sharing model by March. “We still have not signed the concession agreements, which is still some time away, but we expect there to be 60:40, 65:35, 70:30 (revenue sharing model),” Singh said.

Industry experts believe that funding and revenue generation will not be a significant challenge for the Adani Group because of the longer concession period. According to the concession agreements for Ahmedabad, Lucknow, Mangaluru, Jaipur and Thiruvananthapuram airports, the facilities will be handed to the winning bidder (Adani Enterprises) for a period of 50 years under the public-private partnership model. In comparison, the concession period for the Navi Mumbai International Airport, in which GVK is a majority stakeholder, is 30 years, with an extension option of 10 years.

Currently, the Delhi and Mumbai airports, which were privatised in 2006 with a concession period of 30 years, share a percentage of their gross revenue with AA I — the GMR Group shares 45.9%, while the GVK Group shares 38.7%.

Adani Enterprises commands a market capitalisation of over Rs. 23,145 crore (as on December 19) and reported a net loss of Rs. 10.06 crore for the quarter ended September. The entity has a debt of Rs. 10,580 crore on its books, including term debt of Rs. 5,300 crore. The Adani Group had also thrown its hat in the ring for Jewar Airport in Uttar Pradesh, on which the GMR Group has the first right of refusal, as it operates the Delhi airport. However, the group, which put in the second highest bid of Rs. 360 per passenger per month, lost to Zurich Airport International.

Industry experts believe that the entry of the Adani Group, which has a market capitalisation of around Rs. 1.96 lakh crore and a business portfolio spread across coal mining, power generation & distribution, and ports & logistics, may prompt other players to step up their game. “The Adani Group is a stable corporate, which should not have issues accessing capital. If Indian banks cannot lend, they may easily raise funding overseas. And airports need to be given the hand of formidable players who have demonstrated long-term infrastructure development capability over the years,” an industry expert said requesting anonymity.

The airport business of the GMR Group, which generated revenues of Rs. 1,494.71 crore in the September quarter, is the group’s largest contributor to operating revenues. GMR, which reportedly has a debt of over Rs. 19,000 crore, is in the process of completing a transaction with the Tata Group and two foreign entities which will pare its debt to around Rs. 12,000 crore.

Besides bidding for new airports, the Adani Group has also made efforts to secure its place in the Mumbai International Airport (MIAL). Since March, the Adani Group is engaged in legal battles with the Hyderabad-based GVK group to buy out 13.5% stake from the South African Bidvest group. The Adani Group had in March offered Rs. 1,248 crore to buy out Bidvest’s stake in MIAL. GVK exercised its right of first refusal and the disputed stake sale is now pending hearing before an international tribunal. The Adani Group has also made an offer to buy out an additional 10% stake from another South African stakeholder in MIAL, ACSA Global.

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Source: Financial Express