Adani’s high bids delaying airports takeover?

Firm cites force majeure clause, seeks more time for asset transfer fee payment

June 04, 2020 10:56 pm | Updated 10:56 pm IST - New Delhi

The staggeringly high bids quoted last year by Adani Enterprises for six AAI airports has possibly now resulted in it dilly-dallying in taking over their possession, aviation analysts say.

Adani Enterprises has sought six more months to take possession of three airports for which it signed a concession agreement with Airports Authority of India (AAI) in February 2020, it is reliably learnt.

It has invoked force majeure clause and requested for postponement of the payment deadline for asset transfer fees worth ₹1,000 crore due to AAI.

Last year, the Union Cabinet gave its nod for awarding three out of six airports to Adani Enterprises after it emerged as the highest bidder for all six airports. Its bids were called “aggressive” by then AAI Chairman, Guruprasad Mohaptra, and were 30% to 600% higher than the second highest bidder for different airports. The airports awarded to it include Ahmedabad, Mangaluruand Lucknow.

“The per passenger fee, which was the criteria for selecting the winning bidder, quoted by Adani Enterprises was ambitious and put pressure on how it would make the acquisition profitable. Even before COVID-19 there were concerns over how it would garner non-aeronautical revenue, which is a substantial amount of total revenue. These sources of revenue, such as retail parks, aerocity, take material time to develop. And, now with travel demand taking a hit due to the pandemic this task has become much more challenging,” said an industry insider. He added, “I am not surprised by their reluctance. It was always a time of when they would make it known. The long gap between awarding of the concession this February after the transaction was closed last year was an early sign of this.” On July 28, The Hindu reported how the government’s panel for public private partnerships brushed aside important recommendations from Finance Ministry and NITI Aayog, which effectively led to Adani Enterprises Limited emerging as the winning bidder for all six airports.

Suggestions to not award the same player more than two airports, include the requirement of prior experience in operation and management of airports as well as ways to ascertain the financial capability of interested players were dismissed.

The latest development also casts a doubt over the second round of airport privatisation for which six more airports have been identified, unless the government revisits the bidding parameters. Airport privatisation also found a mention in Finance Minister Nirmala Sitharaman’s plan for ₹20 lakh crore stimulus package.

“In the long term, the airport business is resilient and attractive but a black swan event of this kind will dent long term valuations. Hence, biddings whether in the near term or even later, should attract global bidders, but at lower valuations as compared to those last year. That is a compromise the government will have to make to secure cash for AAI and for deepening and widening the reach of airport infrastructure in the country. It could also revisit the bidding criteria by considering replacing per passenger fee to be paid by the concessionaire to AAI with an upfront premium amount, as more common globally, to bring more cash on the table for AAI,” said Sidharath Kapur, who served as the CEO of Adani Group’s airports business briefly last year and the former executive director, GMR Airports Limited.

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