Indian conglomerate Adani Group is in advanced talks with a Middle East-based sovereign wealth fund (SWF) to raise up to $1 billion for its airport business, marking a significant step in its expansion efforts. According to a report by the Economic Times, the funding is aimed at bolstering Adani Airport Holdings in its plans to further develop India’s airport infrastructure.

Dual-Phase Fundraising Strategy

The planned fundraising will take place in two phases. The first round, expected to be completed by the end of Q4 2024, will be sourced from the sovereign wealth fund. While the name of the SWF has not yet been disclosed, speculation points to potential partners like the Abu Dhabi Investment Authority (ADIA) or the Qatar Investment Authority (QIA)—both of which have previously worked with the Adani Group. The capital raised will be deployed to further expand Adani’s portfolio of airport assets, which already includes seven major airports across India, and help finance a new airport in Navi Mumbai.

The Navi Mumbai airport project alone is part of a broader strategy by the Adani Group, involving an estimated $21 billion investment over the next decade. This would represent a landmark development in India’s aviation sector, as it seeks to meet the growing demands of air traffic and enhance its global airport infrastructure.

Strategic Timing with QIP

The fundraising discussions with the Middle Eastern sovereign fund align with Adani Enterprises’ simultaneous move to launch a qualified institutional placement (QIP), a method often used by companies to raise capital from institutional investors. The QIP, which was initiated on October 11, 2024, aims to raise $500 million, with proceeds intended for further development of airport facilities, financing capital expenditure, and servicing a portion of the group’s debt.

Interestingly, the QIP’s total value could potentially double, as Adani Enterprises included a greenshoe option. This would allow the company to increase the total offering by an additional $500 million if investor demand proves strong, bringing the total fundraising effort to $1 billion. Although this amount is significantly lower than the original target of $2 billion, it is seen as a crucial move in light of the conglomerate’s debt management and infrastructure expansion strategies.

Adani’s Expanding Airport Portfolio

Adani Airport Holdings Limited (AAHL), a wholly owned subsidiary of Adani Enterprises, is a key player in India’s rapidly evolving airport infrastructure landscape. Since acquiring its first airport in 2019, Adani’s airport portfolio has grown to encompass seven airports across the country, including those in key cities such as Ahmedabad, Lucknow, and Mangalore. Adani is also in the process of constructing the Navi Mumbai International Airport, which is slated to become one of India’s largest and most advanced airports once completed.

The group’s aggressive expansion in the airport sector is part of its broader vision to become one of the world’s leading airport operators. With the aviation industry recovering post-pandemic, Adani has made strategic investments to capitalize on increased air travel demand. According to Jugeshinder Singh, Adani Group’s Chief Financial Officer, the Navi Mumbai airport is part of a $21 billion investment plan that will unfold over the next decade, positioning Adani as a leader in both domestic and international airport operations.

A History of Collaboration with Gulf SWFs

The Adani Group’s negotiations with Middle Eastern sovereign wealth funds follow a pattern of collaboration with Gulf-based entities. ADIA and QIA have been involved in several previous transactions with Adani’s various businesses. For instance, in July 2024, both entities participated in Adani Energy Solutions’ $1 billion share sale in India. Their participation underscored the growing financial ties between the Gulf and India, particularly in the energy and infrastructure sectors.

This ongoing relationship with Gulf investors is reflective of the strong strategic alignment between India and the Middle East. Over the years, sovereign wealth funds from the region have increasingly looked at India as a viable destination for long-term investments, particularly in infrastructure projects. These funds are typically known for their patient capital and willingness to support large-scale infrastructure projects that promise stable returns over the long term.

Expanding Middle Eastern Presence

Beyond airport infrastructure, Adani has also made significant inroads into the Middle East, a region that has become an essential part of the company’s global expansion strategy. In August 2024, Adani Power, another subsidiary of the group, incorporated a wholly owned subsidiary in Abu Dhabi. This new entity is registered as an investment holding company and aims to invest in power, infrastructure, and other related sectors across the region.

This move into the Middle East comes at a time when Gulf countries are heavily investing in renewable energy, infrastructure, and digital transformation, all of which align with Adani’s strategic priorities. By establishing a presence in Abu Dhabi, Adani Power is positioning itself to capture opportunities in the region’s growing energy sector, which is undergoing a transformation driven by a push for sustainability and green energy initiatives.

Adani’s Resilient Strategy Despite Past Challenges

The talks with the sovereign wealth fund and the launch of the QIP come at a critical juncture for Adani Group, as the conglomerate has faced scrutiny over its financial practices in recent years. Earlier in 2023, the group was hit by allegations from Hindenburg Research, which accused Adani of stock manipulation and fraud. Although Adani has denied these claims, the fallout led to a sharp decline in the group’s stock prices and raised concerns among investors.

Despite these setbacks, Gautam Adani, the founder and chairman of the Adani Group, has shown resilience, with the group continuing to attract investment from global institutions. The involvement of prestigious sovereign wealth funds like ADIA and QIA is seen as a vote of confidence in the company’s long-term prospects. Furthermore, the group’s focus on infrastructure—particularly airports—positions it well to benefit from India’s economic growth, which is expected to remain robust in the coming years.

India’s Growing Aviation Market

India’s aviation sector is one of the fastest-growing markets in the world. With a population of over 1.4 billion and a rising middle class, air travel demand is set to surge over the next decade. The Indian government has also introduced policies aimed at boosting infrastructure development, including airports, to meet this growing demand. The UDAN (Ude Desh ka Aam Nagrik) initiative, for instance, is a regional connectivity scheme designed to make air travel more affordable and accessible across India.

Adani’s airport business stands to benefit significantly from this growth. The company’s focus on building and modernizing airports aligns with the government’s vision of enhancing regional connectivity and improving the passenger experience at Indian airports. With air traffic expected to reach 1.12 billion passengers annually by 2035, according to the International Air Transport Association (IATA), Adani is well-positioned to capture a significant share of this expanding market.

Conclusion

Adani’s ongoing discussions with a Middle Eastern sovereign wealth fund, coupled with its latest QIP, reflect the group’s strategic efforts to raise capital for its ambitious airport expansion plans. As India’s aviation market continues to grow, and with Gulf investors increasingly looking to participate in India’s infrastructure story, Adani’s airport business is poised for substantial growth. Despite facing challenges, Adani’s resilience and strategic partnerships will likely continue to drive its success in the global airport industry.

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By: Montel Kamau

Serrari Financial Analyst

14th October, 2024