 "Adani Ports")
By P R Sanjai and Chris Kay
Standing before Sri Lankan officials and US diplomats in a five-star hotel in Colombo last week, Karan Adani boasted that a newly inked $553 million US government financing deal toward a port terminal being developed by his family’s conglomerate was a “reaffirmation by the international community.”
The announcement marked a welcome reprieve for India’s Adani Group following a damaging short-seller attack and a number of corporate fraud allegations leveled against it this year. It also signaled Washington’s endorsement for the port empire owned by Karan’s father and billionaire Gautam Adani — seen as a close ally of Prime Minister Narendra Modi — that would help curb China’s maritime influence in the Indian ocean.
Those waters account for more than one-third of the world’s bulk cargo traffic and two-thirds of oil shipments. Chakri Lokapriya, chief investment officer at TCG Asset Management Co. in Mumbai, called Adani’s port ambitions a “strategic” play, assisting India to counter China’s own string of ports in its backyard, stretching from Sri Lanka to Pakistan.
Now Adani Ports and Special Economic Zone Ltd., seen as the conglomerate’s crown jewel, is eyeing further “opportunities in our neighboring countries,” Karan Adani, the operator’s chief executive officer, told Bloomberg News in the Sri Lankan capital. Those include potential ventures in Bangladesh, as well as East African and Southeast Asian nations, including Tanzania and Vietnam, adding to its existing Sri Lanka and Israel developments, he said.
In a world that’s “looking beyond China — it is indeed a Chinese-styled expansion by Adani,” said Sanjiv Bhasin, director at Mumbai-based IIFL Securities Ltd.
‘Long Game’
The US funding for the Adani-led West Container Terminal in Colombo via the Intentional Development Finance Corp. was a shot-in-the-arm after a torrid few years for the Adani Group’s overseas expansion efforts.
The conglomerate pulled the plug on its plans to build a port in Myanmar following a military coup. Last year, Adani faced protests and political criticism in Sri Lanka, which characterized the firm’s port and energy proposals as opaque projects pushed onto the country by New Delhi. India’s main opposition party has said Modi uses the country’s diplomatic service to advance the tycoon’s interests — allegations the government and Adani deny.
But while Adani Ports is India’s largest operator — with a collection of 14 domestic terminals that can handle 600 million metric tons of capacity — it remains a relative minnow overseas. It’ll need to scale up manifold before challenging China’s wide sphere of influence, which is built on investments in more than 90 ports outside its borders, 13 of which have majority Chinese ownership, according to the US Council on Foreign Relations.
“Given that Beijing is so far out front, it’s hard for Adani or anyone else to hold a candle to China’s infrastructure investments anytime in the foreseeable future,” said Michael Kugelman, director of the South Asia Institute at the Wilson Center in Washington. “But Adani and his companies are playing a long game. They’re looking to slowly but consistently build out new investments in South Asia and beyond.”
India Focus
Gautam Adani has openly criticized China in the past, but the conglomerate’s focus is still firmly anchored at home, where the billionaire is seen to have nurtured a long-standing friendship with Modi, publicly tying his business plans to the government’s economic objectives.
Adani Ports’ domestic business accounts for about 90 per cent of the firm’s revenues, Karan Adani said, adding that “this will remain as we are expanding in India.” A new Adani transshipment terminal in the southern state of Kerala was inaugurated last month, aiming to grab a bigger slice of international cargo.
“Trade is booming, we are just doing a catch up game,” he added. “We are always short of capacity and that is hurting Indian trade.”
His comments follow Modi’s outline in September for an Indian-Middle East-Europe Economic Corridor, part of which may run through Adani’s port in Israel’s Haifa. They also hint that the group is looking to head into a new expansionary phrase after paring back some plans to reassure investors following Hindenburg Research’s January broadside.
Despite the US government loan package and recent investment from the likes of TotalEnergies SE in Adani’s green energy business, it’s premature to say “the floodgates of international finance will open for the Adani Group” as increased scrutiny on the conglomerate’s business practices remain, said Samantha Custer, director of policy analysis at AidData at William & Mary’s Global Research Institute.
In August, Adani Port’s auditor Deloitte Haskins & Sells LLP resigned after it couldn’t determine if the business was fully compliant with local laws, flagging concerns over transactions between Adani Ports and three entities that Adani said were unrelated parties. The reasons for Deloitte’s resignation “were not convincing,” the chairman of the company’s audit committee said at the time.
With global markets and financing conditions remaining tight, Adani Ports may also “face the challenge of raising funds to fuel expansion as the cost of the debt is going to be high,” said Bhasin at IIFL Securities.
‘Reputational Risks’
Shares in Adani Ports fell 1.5 per cent on Thursday after it posted a 4 per cent year-on-year rise in quarterly net income to 17.48 billion rupees ($210 million), missing average analyst estimates. But the firm’s “resilient growth capability is visible if a 4.55 billion-rupee accounting write-off from the adoption of a new tax regime is discarded,” Denise Wong, an analyst at Blomberg Intelligence, wrote.
Sanford C. Bernstein analysts Nikhil Nigania and Anusha Madireddy in a report published on Friday also pointed to “strong” quarterly volume growth up 17 per cent from the same quarter last year, with gross debt falling to 472 billion rupees from 498 billion rupees at the end of March. They said that actions taken to curb leverage in the wake of Hindenburg’s attack “could be a blessing in disguise.”
“Adani’s businesses have proved to be quite resilient in the face of the fraud allegations, and Adani himself is somewhat of a Teflon man,” said Kugelman. “Many investors, recognizing the size and clout of Adani’s businesses, have swallowed the reputational risks associated with doing business with him. The US, based on its West Container Terminal investment, is no exception.”
Even as New Delhi seeks to compete with Beijing in infrastructure-led development in South Asia and Africa, it will be a “tall order” for players like Adani to disrupt the status quo, Custer said. But there are signs that China is moving away from big bilateral infrastructure deals after many countries it financed became mired in debt.
“We may be at a consequential inflection point,” said Custer. “If this trend continues, there may be a growing gap between the level of infrastructure projects that Beijing is willing to supply versus that which low-and middle-income countries demand, creating a window of opportunity for rival firms.”
