Wednesday, October 4, 2023

Adani Group’s FPO Withdrawal Likely To Affect Airport Upgrades

By Aritra Banerjee

Adani Group’s recent decision to withdraw its follow-on public offering (FPO) will significantly impact the airport development plans, as a quarter of the expected proceeds were earmarked for airport upgrades. The company was planning to use over Rs. 5,200 crore ($719 million) for the upgradation of Ahmedabad, Lucknow, and Mangaluru airports between January 2023 and March 2024, and Rs. 4,165 crore ($574 million) for repaying debts and green hydrogen projects.

The decision to cancel the Rs. 20,000 crore ($2.7 billion) FPO was made in the best interest of investors following a selloff in all group company stocks after a report by a US-based short seller alleged accounting fraud and stock manipulations by Adani companies. The need for more funding will put the group in a challenging position as they need help to secure alternative funding sources.

However, an Adani spokesperson stated that the lack of funds will not impact their current operations or future plans and that the company will continue to focus on the timely execution of their projects. The Adani Group acquired a 74% stake in Mumbai’s international airport in July 2021, and with it, the responsibility to operate and develop airports for the next 50 years.

The group was expected to invest Rs. 2,268 crore ($309 million) in Ahmedabad airport, Rs. 304 crore ($41 million) in Mangaluru airport, and Rs. 2,722 crore ($372 million) in Lucknow airport. Upgrades to passenger facilities, cargo complexes, and fuel storage were planned for the three airports. The Adani Group pays the Airports Authority of India (AAI) a per-passenger charge for the airport development and management rights.

Twin-Airport Strategy For Mumbai & Navi Mumbai Airports Revealed

The Adani Group had recently revealed its plans to create a twin-airport strategy for Mumbai and Navi Mumbai airports. In a recent red herring prospectus for its follow-on public offering of new shares, the conglomerate stated that the strategy aims to reduce congestion at the Mumbai International Airport by shifting small aircraft operations to the soon-to-be-operational Navi Mumbai airport. The Adani Group aims to begin this shift by December 2024.

The group also aims to shift one major airline from Mumbai International Airport to Navi Mumbai International Airport. Major carriers such as IndiGo, Vistara, and Air India operate out of Mumbai International Airport. The shift is expected to increase efficiency and economy of scale for the chosen airline, with priority allocation of slots at Navi Mumbai International Airport.

Adani Group’s airports business was boosted in 2019 when it won bids for six Airports Authority of India airports, including Lucknow, Ahmedabad, Mangaluru, Jaipur, Guwahati, and Thiruvananthapuram. The group pays a per-passenger charge to the state-owned Airports Authority of India and holds responsibility for these airports’ operation, management, and development for the next 50 years.

In July 2021, the Adani Group acquired a 74% stake in Mumbai International Airport by purchasing GVK Group’s 50.5% stake and a 23.5% stake from ACSA Global Ltd and Bid Services Division (Mauritius) Ltd (Bidvest). The acquisition also allowed the group to build and operate the Navi Mumbai airport.

The Adani Group plans to invest Rs. 8,000 crores in its airports business over the next five years, using nearly 40% of the gross proceeds from its Rs. 20,000 crore follow-on public offering of new shares. The group has proposed to invest Rs. 2,268 crores in Ahmedabad airport, Rs. 304 crore in Mangaluru airport, and Rs. 2,722 crores in Lucknow airport. These investments will be used for various improvements, including terminal upgrades, airside improvements, fuel storage and distribution systems expansion, and more.

Adani Group aims to increase international flights to long-haul destinations in the western world and Southeast Asia. The group plans to attract airlines by offering incentives such as night maintenance services and airplane parking bays and developing air cargo infrastructure such as cargo villages and logistics parks. The group also plans to generate revenue from the commercial development of the 650 acres of property surrounding its airports, including hotels, retail establishments, and office space.

According to data from the AAI the seven airports operated by Adani Group accounted for 23.7% of passenger traffic and 30.7% of freight carriage in India as of December 2022. The group aims to make its airports a “destination magnet” for customers by offering a convenient super-app and developing surrounding land in a phased manner.

Most Popular

Subscribe to our newsletter

To receive the latest news on Indian aviation and defence.