Airport operations may be only the start of Adani Group’s ambitions for Jomo Kenyatta International Airport, with the Indian firm’s $1.85 billion (Sh238.52 billion) bid to take over its management including plans to develop commercial real estate and hospitality businesses.
Adani Airport Holdings, a subsidiary of the Indian conglomerate controlled by Gautam Adani, one of Asia’s richest men, made a privately initiated proposal to the Kenya Airports Authority (KAA) to run the airport under a 30-year concession.
Details of the deal, viewed by the Business Daily, show Adani targets an 18 percent return on its investment—and analysis of the proposal reveals that one source of profit would be from expanding beyond the airport’s boundaries. While Adani asks for significant government help in development, market conditions and tourism trends may complicate profitability.
The so-called city-side development “is mandatory to reach Jomo Kenyatta International Airport (JKIA’s) full potential of monetisation,” Adani proposes to the KAA, saying “lifestyle destinations,” hospitality, business hubs, and amenities would be available to travellers and Nairobi residents.
“There is a significant area of land available near JKIA” for such purposes, Adani’s proposal reads, with the opportunity for hospitality infrastructure near the airport, which is notably adjacent to Nairobi National Park.
While Adani’s outlook on the market around JKIA offers promising opportunities, the project is proposed in an industry that faces challenges driven by economic unpredictability and evolving consumer behaviours.
Several key developers in the hospitality industry in the capital city have run into challenges including low occupancy levels amid stiff competition from new trends such as short-term rentals, popularly known as Airbnbs.
Many visitors coming to the country for leisure, business, and conferences have also been preferring destinations outside the city—a pattern that suggests no guaranteed success for hospitality facilities around JKIA.
However, Adani says financial gains could be substantial, going by examples from elsewhere. Adani details how other international airport hubs, namely Frankfurt and Delhi, have contributed significantly to economic growth in Germany and India, respectively.
The aviation sector contributes 2.6 percent to Germany’s economy and Delhi’s airport contributes 0.7 percent to total Indian gross domestic product, Adani said.
While the proposal to the KAA covers a strict 30-year concessionary deal for JKIA, there may be a suggestion that commercial investments could last longer.
The value of these capital expenditures would be structured in a way to guarantee Adani’s equity internal rate of return at 18 percent.
“The success of the project is highly dependent on favourable tax policies,” Adani’s proposal continues, asking for favourable tax treatments such as exemptions from tax on corporate income for a set period.
In the Adani plan, land linked to city-side development and commercial real estate would be subleased through the KAA, the proposal details. More broadly, Adani proposes that any land acquisition required for the development or enhancement of facilities at the airport be provided by the government of Kenya or KAA at no additional cost to the Indian firm.
Adani added that the government should support the group in engagements with communities and businesses adjacent to the airport.
Moreover, under the proposal, Adani would be allocated unencumbered land for the 30-year term to carry out airport property investment and development, with capital expenditures incurred transferred to the KAA at the end of the concession.
The value of these capital expenditures would be structured in a way to guarantee Adani’s equity internal rate of return at 18 percent.
“The success of the project is highly dependent on favorable tax policies,” Adani’s proposal continues, asking the government of Kenya to consider favorable tax treatments such as exemptions from tax on corporate income for a set period.
The government should also “enact or amend the existing Kenyan laws to the extent required … to make the project bankable and ensure the commitments made to the investor are met,” Adani said.
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