Global funds make a beeline for India airport privatization

22 January 2019 - 12:00 am UTC

A rule change by the Indian government is luring global investors to the country’s biggest airport privatization drive.

Sources familiar with the matter said global investors preparing to bid in the process include Global Infrastructure Partners (GIP), PSP Investments-backed AviAlliance, Macquarie Group, Sydney-based AMP Capital, Fairfax, Zurich Airport, Singapore’s Changi Airport, Munich Airport, Brookfield, KKR, Italy’s Atlantia and French airport operator Groupe ADP.

Last month, the state-run Airports Authority of India called bids for the privatization of six airports servicing the cities of Ahmedabad, Guwahati, Jaipur, Lucknow, Mangaluru and Thiruvananthapuram. The bids close next month and  the concession will be awarded by the end of February.

After having failed to attract bidders for two years for the operation and maintenance of these airports, the government has made a few changes this time that have caught investors fancy. Instead of gross revenue sharing, as was done in the case of Mumbai and Delhi airports, the concessionaire in this case will pay the authority a per-passenger fee.

The concessionaire also gets the right to develop the land in and around the airport and the concession period is 50 years as compared to the normal 30 years.

“It is important that whenever you invite private investors they should see that there is some viability in the airport,” the Association of Private Airports Operators (APAO) Secretary General Satyan Nayar told Inframation.

“A per-passenger fee method is a more transparent and a simple way to calculate,” he added.

According to Nayar, the current formula of revenue share is very high and leading to increase in costs. Also, since it is gross revenue, it leaves little for the developer to invest in development of the airport, he explained.

India’s Delhi international airport, run by GMR, shares 46% of its gross revenue with the government, while the Mumbai International Airport, operated by GVK, shares 39%.

India needs as much as INR 4trn (USD 56bn) in the next 20 years to upgrade its airports, according to Nayar.

“Given the limited resources of the government, privatization is the only way to drive aviation growth in India,” he said.

The drive is likely to see good response from local developers too. GVK, GMR, Adani Group, Essel Infraprojects and National Investment and Infrastructure Fund are said to be preparing to bid, sources said.

But some doubts remain, the most important being the short timeline of the bidding process.

The Narendra Modi administration wants to finish the entire process by February before the code of conduct for the April-May national election sets in.

Normally, the bidding process should take at least six months for wider participation and better price discovery, an advisor to one of the global funds said.

Some operators are not pleased with some clauses in the concession agreement.

“Unfortunately, there is no linkage between revenue and payment to the government as it is based on per-passenger, an absolute number,” Sidharath Kapur, Executive Director of GMR Airports, said while speaking at an aviation summit in Mumbai last week.  

“Still, we are puzzled that the concession agreement which is now being proposed for the six airports contain clauses like you cannot do related-party transactions, you cannot do joint ventures, you cannot collect deposits, especially when there is no linkage why have these clauses which are in a way trying to curtail the way you want to do business,” Kapur explained.

He added that there is expected to be “good response” from international bidders for the six airports on offer for privatization.

“India is very attractive to us as it is one of the most dynamically developing markets for air travel due to a growing middle class,” a spokesman for Zurich Airport said.

Zurich is “considering participation” in the six airport privatization, however, “it has neither been decided if, nor for which of the airports this would be the case,” the spokesman added.

Zurich Airport had invested in Kempegowda International Airport in Bangalore and sold its share in 2017 and had “positive experiences with its investment,” the spokesman said.

A spokesperson for AviAlliance said, it is “interested in enlarging its portfolio by acquiring stakes in attractive airports,” however, declining to comment on specific projects or ventures.

A spokesman for GIP declined to comment on “market rumor or speculation.”

A spokesperson for Bangalore International Airport, in which Fairfax holds 54%, declined to comment. Macquarie too declined to comment.

AMP Capital, Changi Airport, Munich Airport, Brookfield, KKR, Atlantia, Groupe ADP, GVK, GMR, Essel, Adani and Essel did not immediately respond to requests for comment.

 

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