Stock rout may temporarily slam brakes on Adani’s airport ambition
3 min read . Updated: 06 Feb 2023, 12:59 AM IST
Premium- Infrastructure analysts, though, believe the group’s non-airport projects are unlikely to be affected in any way
- Adani group’s offer for the Mangaluru airport was over twice that of the second top bidder
NEW DELHI : The Adani group’s pursuit to dominate Indian infrastructure, especially airports, through aggressive expansion may face turbulence with the current meltdown in valuation and credibility, industry executives and analysts said.
Having withdrawn its ₹20,000 crore follow-on public offer and been put under watch by rating agencies following a damning report by New York-based short seller Hindenburg Research, the group may no longer bid as aggressively as it did in the past, they said.
“The group will not be able to bid as aggressively as earlier since the cost of capital is set to rise considerably for them. Any change in the cost of capital is set to impact various calculations," an industry executive said on the condition of anonymity.
Adani, in February 2019, won bids to upgrade and operate six government-owned airports—Lucknow, Mangaluru, Ahmedabad, Jaipur, Guwahati and Thiruvananthapuram—for 50 years. The winners were decided on the basis of revenue per passenger paid by each bidder, and the Adani group’s offers were much higher than the second-highest bid—it was more than double the second bid in one case (see chart).
“That aggression is unlikely in the second phase of the airport divestment plan to be rolled out by the government. Airport companies, which compete with Adani, can heave a sigh of relief," said another executive who has been involved in the Indian government’s airport bidding process in the past.
A financially weaker Adani would mean the government, which gained from the group’s aggressive bids in the past, will earn less.
An industry analyst said the group could regain its financial strength only in 18-24 months.
“This will impact the group’s strategy to acquire more airports under public-private partnerships in the short to medium term. So, if the bids are called in the next three-six months, the group’s ability to put in aggressive bids will be limited, but the situation could be different if bids are called in around two years," the analyst said.
Others peg the hope on banks’ continued support for the Adani group since the conglomerate has been regularly servicing its debt. “Adani [group] is servicing its borrowings on time, so banks should support it. The biggest challenge ahead is winning back the global investor confidence," said Mark Martin, chief executive officer of Martin Consulting, an aviation consultancy.
The government is working on a plan to sell about 11-13 more airports run by the Airports Authority of India (AAI). Arun Bansal, CEO of Adani Airport Holdings Ltd (AAHL), said in an interview on 18 January that the company would consider bidding for these projects. Those plans may need a relook now.
The seven operational airports run by the Adani group make up 23.7% of the total passenger traffic in India according to government data for December. In terms of freight carriage, the share of airports under the group stood at 30.7% in December.
Beyond airport projects, the group is also considering buying the government’s stake in the airports in Bengaluru, Hyderabad, Delhi and Mumbai, where the Adani group currently owns a 74% stake. The government has plans to sell AAI’s stake of 13% each in Hyderabad and Bengaluru and 26% each in Delhi and Mumbai. Mint reported in November that the conglomerate is eyeing a stake in the Bengaluru airport, too.
“AAHL is a self-contained entity with a robust business plan. AAHL’s business plan remains as before," a spokesperson for Adani group said in an emailed response to queries.
The conglomerate is also aggressive in the road sector, with its portfolio comprising 18 projects that have an asset value of more than ₹44,000 crore.
Infrastructure analysts, however, believe that the group will continue to expand in the infrastructure space.
“Infrastructure projects are making money for the group, and there is no reason for them to stop expanding in that space," said Vinayak Chatterjee, founder and managing trustee at The Infravision Foundation.
The industry executives cited above said the current turmoil may not affect Adani’s infrastructure projects in the long run since they are cash-generating assets. The planned upgradation of three airports owned by the group, however, is likely to get impacted by the withdrawal of the FPO, Mint reported on Friday.
