Adani takes the Jio route to disrupt airports business

The Adani group’s debut in the airports business has been equally audacious. Despite its Rs 1.26 trillion debt pile, the group emerged the highest bidder for as many as six airports in the government’s first such auction in 13 years since the GMR and GVK groups won the right to manage Delhi and Mumbai airports in 2006, reports Shyamal Majumdar.

The strategy may be completely different, but the Adani group could end up doing in the airport infrastructure business what Reliance Jio has done in telecom.

Mukesh Ambani was a late entrant in telecom (Reliance Communications had gone to his younger brother), with Jio starting full-fledged commercial launch only in 2016.

But just three years later, the telecom sector is down to three players, and the third entity is under so much financial stress that very few would be surprised if it is forced to retire hurt.

While Reliance Jio took the low-cost tariff route (in fact,  the “free” route for quite a while) to decimate most of its telecom competitors, its investment (at an estimated Rs 3 trillion so far) in setting up infrastructure has been huge, pushing up the group’s debt significantly to Rs 2.87 trillion.

The Adani group’s debut in the airports business has been equally audacious.

Despite its Rs 1.26 trillion debt pile, the group emerged the highest bidder for as many as six airports in the government’s first such auction in 13 years since the GMR and GVK groups won the right to manage Delhi and Mumbai airports in 2006.

Greenfield airports like those in Hyderabad and Bengaluru were also awarded at the same time.

The Adani group’s bids far outstripped those of the competitors.

For instance, for the Ahmedabad airport, Adani outbid GMR by offering Rs 177 per passenger against the latter’s offer of Rs 85.

The stage is thus set for the Adanis to become the third-largest private airport operator in terms of passengers handled, after the GMR and GVK groups.

The only other significant player is Fairfax India Holdings, which got its hands on the Bangalore International Airport when GVK sold its stake.

With the government planning to privatise 20-25 more airports in the next phase, a sensible move considering that as many as 109 out of 123 airports in India are loss-making, the Adani group is certain to put in aggressive bids for many of these as well to consolidate its position in the airport infrastructure space.

But the process will take time.

In any case, these airports have an annual passenger traffic of 1 to 1.5 million only.

And, the total volume of passengers at all the six airports that the Adanis have won is less than the 48.5 million that the Mumbai airport alone handles.

So, the writing on the wall is clear: If you have to be the largest airport player in the country, Mumbai airport is an important pit stop.

But Mumbai airport is out of bounds as the GVK group holds the controlling stake of 50.5 per cent in Mumbai International Airport Ltd (MIAL).

So the Adanis have done what they are best at: They want to pick up the 23.5 per cent stake that two South African companies, ACSA and Bidvest, together hold in MIAL.

The group has already offered to buy out Bidvest (13.5 per cent) and ACSA (10 per cent), valuing the world’s busiest single-runway airport that handles around 1,000 flight movements a day, at Rs 9,500 crore.

If the deal to acquire a significant minority stake fructifies, it will give the Adanis two critical advantages: An insight into the operations of a leading airport and a stake in the Navi Mumbai airport, a 100 per cent subsidiary of MIAL.

The matter is in court after GVK, wary of the prospect of the Adanis getting a foothold in MIAL, decided to exercise its first right of refusal.

What the Adanis are obviously betting on is the GVK group’s failure to match the offer by October 31 due to its stretched balance sheet.

The strain in GVK’s finances has been evident for a while now, and matching the Adani bid for the Bidvest and ACSA stake will be difficult for a group that is already stuck with Rs 24,000 crore debt.

The Navi Mumbai airport project, which achieved financial closure recently, will add another Rs 8,500 crore to it.

There is already the risk of cash flows not being enough to pay interest, increasing the risk of default.

Half the existing debt is accounted for by the power business, which is not exactly in the pink of health.

Lenders to MIAL are also getting nervous after rating agency Crisil downgraded its bank facilities and non-convertible debentures from AA to A+.

The ratings were subsequently placed on “rating watch with negative implications”.

This was because of the delay in real estate monetisation.

Though MIAL has development rights for 194 acres, it has monetised only three parcels totalling around six acres.

While the group has been in talks with select banks to convert debt into equity, and has been talking to private equity investors to take up substantial stake in the airport holding company, the process is taking a lot of time.

And that’s precisely what GVK doesn’t have at this point -- a fact that hasn’t obviously escaped the attention of the Adani group.

There is no doubt that the Adani group’s dream to become the largest airport player has become the GVK group’s worst nightmare.