Adani eyes 3 global ports, prepares $3 billion cash chest

MSC Valeria, an ultra-large containership from the Mediterranean Shipping Company S. A., of Geneva, prepares to dock at the Indian Adani Ports and Special Economic Zone at Mundra, some 400 Km from Ahmedabad
MSC Valeria, an ultra-large containership from the Mediterranean Shipping Company S. A., of Geneva, prepares to dock at the Indian Adani Ports and Special Economic Zone at Mundra, some 400 Km from Ahmedabad

Summary

Adani Group is planning to invest up to $3 billion in the next two years to expand international ports business, primarily via acquisitions as the Ahmedabad-headquartered conglomerate aims to create a prominent presence in the crucial international business route connecting Europe and the US traversing Central and West Asian nations

To capitalize on the rising demand for iron-ore and coal imports and for exports of finished goods, the Adani group has readied a $3-billion war chest to expand its global ports capacity and establish a prominent presence in the corridor connecting India to Europe via Central and West Asia, two persons aware of the group’s plans said.

The conglomerate is likely to enhance its overall port (container-handling) capacity from around 600 million metric tonne per annum (of which 420 MMT is domestic) to 800 MT in the next two years, primarily via a series of international acquisitions, the two persons said on condition of anonymity.

According to the persons, Adani group has set its sights on at least three large ports on the coastal borders of Europe, Africa and South East Asia in line with its strategy.

“This will be largely driven by inorganic growth," the first person said, adding that the group’s target is to boost port revenues by achieving economies of scale in the crucial international trade route that is currently dominated by China.

Also read Norway fund giant Norges cuts off Adani Ports

“The aim is to increase the contribution of international ports to the company's (APSEZ) revenues from 10% currently to about 20-25% in the next three years. Also, the group's plan is in line with the government's vision to build better trade ties with European, West Asian and African nations," said the second person.

Adani Group, which manages ports business under Adani Ports and Special Economic Zone Ltd. (APSEZ), is planning to fund the $3 billion capex through a mix of cash, internal accruals and debt, according to the first person. To acquire new overseas ports, the group may also use a part of proceeds that are expected to come from an upcoming fundraise.

The group currently has operating capacity in countries including Israel, Sri Lanka, Indonesia, Tanzania and Australia. The company also has signed MOUs to help in various port-related activities in Vietnam, Malaysia and Philippines.

“Adani Group is open for any opportunity, especially internationally, for further growth in our portfolio. While expanding the international ports capacity and higher cargo volumes, Adani Ports’ revenue is expected to be 30,000-31,000 crore in fiscal 2025," the first person said.

APSEZ’s consolidated revenue in FY24 grew 28% year-on-year to 26,711 crore, and net profit jumped 50% to 8,104 crore. Both are record highs.

An email sent to Adani Group seeking comment on the latest capex plan remained unanswered till press time.

Strategic drive for greater capacity

In India, APSEZ, the country’s biggest private ports operator, owns 15 ports and terminals (seven on the west and eight on the east coast). The company handled a record domestic cargo volume of 420 MMT (million metric tonnes) in FY24, a jump of 24% year-on-year. Adani’s cargo volumes form a big part or around 25% of the country’s overall volumes of around 1540 MMT (as of FY24), as per data from the Ministry of Ports, Shipping and Waterways and Adani's regulatory filings.

The two persons cited earlier said the mega port expansion plan has been discussed internally over the past three months.

Ashwani Gupta, whole time director and CEO, Adani Ports and SEZ, told analysts on a post-earnings call last Monday, “Moving forward, we are under discussion for further expansion in the international ports."

“...capex (of Adani ports) is expected to range between Rs.10,500 crore Rs.11,500 crore (in FY25)," said Gupta.

Adani Ports is looking at the cargo traffic in the Middle East, Southeast Asia, Africa and Mediterranean for growth in the medium term. “There will be strategic acquisitions and partnerships in these four regions according to the group's strategic roadmap for the next 3-5 years," said the first person.

Betting on demand recovery

While drawing the ports expansion strategy, Adani Group is essentially betting on the recovery in container demand from a subdued 2023.

An August 2023 report by Crisil says the government’s ambitious logistics sector-oriented Sagarmala programme envisages the country’s port capacity to go beyond 3,300 MTPA by 2025 via initiatives including Gati Shakti Scheme, National Logistics Policy and Bharatmala Pariyojana.

Crisil expects Indian ports to grow at 3-6% over fiscals 2024-2028, on the back of growth in container cargo, fertilisers, cement, and steel transportation. The container segment is expected to see a growth of 4-7% over fiscals 2023-2028.

Adani wants to capitalize on this increasing demand. Adani’s Colombo terminal acquired last year, which received a financing commitment of $553 million from the US, DFC, is scheduled for commissioning before FY2025 end.

A fortnight ago, the Philippines government said Adani Ports is planning to invest significantly in the country by supporting the government’s port development plan at Bataan.

Also read Adani Ports eyes Bataan for deep-sea port development in Philippines

Adani Ports’s latest growth plan follows a recent elevation in the group’s credit rating. On 30 April, CARE Ratings upgraded Adani Ports’ credit rating to AAA, while acknowledging its ability to fulfil all its financial guidance.

While reducing the interest rate burden on existing loans, this credit revision may make it easier for Adani Ports to raise capital externally for the latest growth plan.

Following the country’s strategy

Adani Group’s plan somewhat mirrors the government’s keenness to improve India’s presence in the global port-connectivity map. On Monday, India signed a long-anticipated agreement with Iran to take over operations at the landmark Chabahar port near the border between Afghanistan and south of Iran to boost trade ties with Central Asia.

Also read: Mint Explainer: Why Iran’s Chabahar Port is vital to India's interests

About 72 km away from Pakistan's Gwadar port, Chabahar opens up a faster transit route for Indian goods in the Gulf market.

In September, the Centre also signed an agreement with some G20 countries to establish the India-Middle East-Europe Economic Corridor to strengthen transportation and communication links between Europe and Asia through rail and shipping networks, competing against the current trade route going through the Suez Canal, on which the ships' turnaround time has been badly impacted due to the ongoing Russia-Ukraine war.

 

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