"India's Airport Sales Face Possible Delays Under New Government"

Wednesday, May 26, 2004
 
India's Airport Sales Face Possible Delays Under New Government
Bloomberg


India's plan to sell stakes in its two biggest airports may be delayed
as the new government of Prime Minister Manmohan Singh negotiates with
communist allies who oppose selling profitable state assets, said
investors including Viswanathan Vasudevan. 

``The fact that communist parties are there is a major worry,'' said
Vasudevan, 34, who helps manage $120 million of stock for Aquarius
Investment Advisors in Singapore, including Indian stocks.
``Disinvestment will go slow everywhere, whether it's airports or
petroleum or insurance.'' 

Delayed sales of the New Delhi and Mumbai airport stakes would set back
India's push to modernize its outdated transportation networks to
attract overseas investors and accommodate an expected surge in travel.
A policy shift could also jeopardize planned bids by Singapore Changi
Airport Enterprise Pte. and Bharti Enterprises Pvt., owner of India's
No. 2 cell-phone company. 

The Communist Party of India (Marxist), an ally of the ruling coalition
forged by Singh, 71, has signaled it wants to postpone the airport
sales. 

``The whole airport privatization plan needs to be studied again,'' said
party leader Nilotpal Basu, 47, in a telephone interview. ``No one is
opposing the modernization of infrastructure, but trying to privatize
the profit and nationalize the losses isn't necessarily a good idea.'' 

Basu told the upper house of parliament last year that his party opposes
the sale of profitable state companies. The Mumbai and New Delhi
airports, which account for half the nation's air traffic, are
profitable, while most of India's other airports make losses. 

June 4 Deadline 

The previous government of Prime Minister Atal Bihari Vajpayee, 79, set
a June 4 deadline for potential investors to submit bids for the airport
stakes. The new government hasn't said whether it will stick to that
deadline. Bharti and Singapore Changi Airport Enterprise, which invests
in airports outside Singapore, said in March they would make bids. 

``We are monitoring the situation in India,'' said Albert Tjoeng, a
spokesman for the Civil Aviation Authority of Singapore, which owns
Singapore Changi Airport Enterprises. ``Singapore Changi continues to be
interested in the development and management of Mumbai and Delhi
airports.'' 

Deepak Jolly, a New Delhi-based spokesman for Bharti, declined to
comment. Anoop Seth, senior vice president at ABN Amro Bank NV in
Mumbai, which is advising the government on the airport sales, also
declined to comment on their status. 

India's biggest airports need a facelift. Arriving passengers in Mumbai
are met with scratched tile floors and cracked windowpanes. The
14-kilometer (8.7-mile) journey into town takes at least an hour on
clogged roads. 

`Crying Need' 

``There is a crying need to enhance India's aviation infrastructure as
it's a market that will grow exponentially,'' said Keith McMullan,
managing director of Aviation Economics, a London-based aviation
consultant. 

The Civil Aviation Ministry predicts the number of passengers using
India's airports will more than double to 85 million a year by 2017 from
39 million this year. Indian cargo traffic will grow sixfold in the next
two decades, the ministry forecasts. 

India's new Congress Party-led government has reassured investors that
it won't scrap plans to upgrade the nation's transportation networks. 

``We wish at the earliest that all major airports, including Delhi and
Mumbai, be upgraded, restructured and improved upon,'' Civil Aviation
Minister Praful Patel told reporters after assuming his post yesterday.
``We would like to go ahead with the process that has already been
initiated.'' 

74 Percent Stake 

Vajpayee's government planned to form two companies to operate the
airports, in which the government and state-run companies would keep 26
percent stakes and private investors would own 74 percent. The previous
government said it aimed to complete the sales by August of this year. 

While objections from communist lawmakers may delay the stake sales,
Singh's government will press ahead with them to meet rising travel
demand in an economy that grew an estimated 8.1 percent in the year to
March 31, a 15-year high, said Kapil Kaul, vice president of the Centre
for Asia Pacific Aviation. 

``There may be a slowdown in pace, but eventually it will be done,''
Kaul said. ``I don't see anyone opposing the creation of good aviation
infrastructure.'' 

India's benchmark Sensex stock index, which plunged 11 percent on May 17
on concerns the new government would slow state asset sales, has risen
13 percent since then. 

`Alive and Well' 

Avinash Vazirani, who manages $75 million in Indian stocks at BNP
Paribas SA in London, said Singh -- who encouraged private investment by
cutting taxes and tariffs as finance minister a decade ago -- is
unlikely to derail the Vajpayee government's plans to sell assets. 

``Let's not forget that Manmohan Singh started off the reforms
process,'' Vazirani said in an e-mailed response to questions. ``The
India story is alive and well, and I'm sure the new government would
keep it that way.'' 

Even so, Singh's new government won't be able to move as fast as the
last government to sell state assets as it faces resistance from its
communist allies, said Amit Bhartia, 35, who helps manage about $11
billion at Grantham Mayo Van Otterloo & Co. in Berkeley, California. 

``Selling companies is going to have to take a backseat,'' Bhartia said.


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