capa india airport and airspace summit€¦ · airports - the investment conundrum key reasons for...

February 1, 2018

Investor Appetite for Indian Airports

CAPA India Airport and Airspace Summit

1

About Edelweiss – Introduction

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Agenda

Airports - the Investment Conundrum

Key Reasons for Lack of Investments

Global Trends in Airport Ownership

Potential steps to Improve Investor Appetite

Indian Airports - An Attractive Infrastructure Class For Investors

3

11.4x 10.5x 10.5x 10.5x

3.2x 2.1x

Mu

ltip

le o

f C

os

t

67% 118% 118% 54% 44% 12%

Target

Acquirer

Amount

(INR mn) 6,138 6,860 4,848 11,496 1,497 38,180

Stake

(%) 14.0% 17.0% 12.0% 13.5% 3.9% 43.0%

Estimated Multiple of Cost and IRRs (based on public information)

Source: VCCEdge, Venture Intelligence, Edelweiss Estimates

Indian Airports – Limited Equity Investments by Foreign Investors

2,575 2,930 8,880

18,598

2,846 - -

11,400

4,920

56,020

2,575 2,930

20,280 23,518

58,866

INR

mn

Primary Secondary

Equity Capital Deployed in Indian Airports by Private Players

15% 22% 21% 69% Share of Foreign Capital

Foreign investors have deployed ~ US$ 1 bn equity capital in Indian airport sector* ~60%

accounted by Fairfax recent investment in Bengalrulu airport

Source: Annual Report VCCEdge, Venture Intelligence, Edelweiss Estimates;*Includes investment made by Changi in BAPL

Agenda





Lack of Brownfield Investment Opportunities in India

6

Currently 5 major operational airports are under Public Private Partnership – Cochin, Mumbai, Delhi,

Bangalore and Hyderabad

22%

17%

9% 6% 3%

43%

DIAL

MIAL

BIAL

GHIAL

CIAL

AAI

Share of Total Passenger Traffic (FY17)*

Total Pax: 265 mn

Private Partnerships for Upgradation/ O&M of existing Airports

AAI has formed a JV with Maharashtra Airport Development Company (MADC) to modernize the existing

Nagpur airport

Six Indian companies have submitted bids for modernization of airport out of which five are being

considered

AAI has invited bids from private airport operators for O&M of Jaipur and Ahmedabad airports as part of

privatization of the two airports

However it did not garner interest from private players as they see limited returns in O&M arrangements

India has presented limited PPP opportunities in airport sector over last two decades

Source: Airport Authority of India

*Excludes private airports Durgapur and airports owned by Reliance due to limited commercial operations

Limited Appetite Among Global Investors in Greenfield Airport Bids

7

Company Bid Outcome Revenue

Sharing (%)

Won 12.60%

Lost 10.44%

Did not submit bid -



Sharing (%)

Won 36.99%

Lost 32.31%

Lost 27.00%



MOPA Goa Airport Navi Mumbai

Bhogapuram Airport (Vizag)


Sharing (%)

To be rebid 30.20%

To be rebid 21.60%



Zurich Airport, Vinci and Incheon

are the only global airport

developers to have shown

significant interest in bidding for an

Indian greenfield airport

Source: Media Articles, Edelweiss Research

Summary of Investor Interest Across Indian Airports

8

Indian Operators Global Operators Indian Funds Global Funds

Greenfield

Airports

Brownfield

Airports

9

Limited Appetite From Global Operators – Key Issues

1. Regulatory Risks

While the regulatory framework for airports in India has got much more clarity over last few years,

global players are not yet fully on-board

Concessions were signed in 2006, however the model to determine tariffs was established only with

incorporation of AERA in 2009, first tariff order was issued in 2012

– Several issues pertaining to tariff determination are yet to be resolved

2. Lack of on-ground execution capabilities

Global operators have limited capability to manage local dynamics

– Land acquisition and other regulatory challenges are handled better by Indian corporates vis-à-

vis global operators

3. Long gestation period

Gestation period of greenfield projects in India have been comparatively higher due to requirement of

various clearances

– Navi Mumbai International Airport was granted approval by Govt of Maharashtra in 2008,

concession finally got awarded in 2017

Recent Measures Towards Development of Airport Infrastructure

10

Proposal to have pre-determined fixed landing and parking charges at airports – elimination of

major regulatory uncertainty that potentially discourages foreign investment

Implementation of hybrid till for all airports under the new National Civil Aviation Policy

Plans to develop 100 airports across India, out of which 70 locations do not have airports, to

cater to growing traffic

Creation of second airports in various cities such as Navi Mumbai, Chennai, Delhi as the

current airport infrastructure is likely to get saturated in next 2- 5 years

Fast tracking of various airport projects such as Pune and Jewar (NCR)

Development of various airports such as Kannur, Navi Mumbai, MOPA Goa, Sindhudurg,

Vizag, Nagpur, Hasan etc. under PPP model

As per CAPA estimates, India will require an investment of US$ 45 bn for building

necessary airport infrastructure by 2030

Source: Media Article, Edelweiss Research

Agenda






12

USA

Public sector ownership

Canada

Owned by Transport Canada along with

local administrators

India

Primarily AAI owned

except for 4 major

PPP airports and 2

privately owned

Middle East

Key airports such as Dubai,

Abu Dhabi and Doha are

owned by Govt.

Spain

AENA is 49% owned by

private investors

Germany PPP model or Corporatized

airports with public sector

ownership

France

ADP has majority public

ownership, but run as a

corporate organization

China

Majority public ownership

with significant private

ownership in the key

airports. Several airports

are listed through which

foreign capital has been

invested in airports

Brazil

Public sector ownership, six

airport on PPP basis

UK Major airports

owned by private players

Pvt 15%

PPP 18%

Public 67%

PPP/ Pvt

50%

Public 50%

Break-up by Number of Airports (2016) Break-up by Number of Passengers (2016)

Source: Steer Davies Gleave Report 2016

Agenda




Potential Steps to Improve Investor Appetite

Potential Steps to improve Investor Appetite

14

Regulatory framework – Ensuing airport developers and operators are

incentivized to build capital efficient and operationally efficient airport

Ready to Bid and Build concessions - Ensuring land acquisition and

other key regulatory approvals are in place prior to bidding of Greenfield

airport concessions

Comprehensive airport city development plan - incorporating

connectivity and future development needs

Privatization of existing larger (5m pax+) airports – reinvestment of

proceeds for development of Greenfield airports in smaller cities to ensure

socio economic development

15

Thank You

capa india airport and airspace summit€¦ · airports - the investment conundrum key reasons for...

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