How much is a gateway to the West worth to India’s Adani?

A group consisting of the Indian Adani Group and Israel’s Gadot Group won the tender to privatize the port of Haifa in a deal valued at NIS 4.1 billion (approximately $1.18 billion). This is a particularly high amount, over $250 million higher than what the tender was estimated to bring in, and around $420 million more than the second-highest bid. The winning group will be operating the port until 2054.

Haifa port.

The Port of Haifa was pleasantly surprised by the amount received, and a senior official from one of the other groups competing in the tender described it as "crazy." The state will receive no less than $780 million in the deal.

The winning group consists of the Israeli company Gadot (30%) and the Indian Adani group (70%). Gadot controls chemical terminals in Haifa and holds a monopoly on the import of grain and chemicals to Israel. Gadot is owned by Tene Investment Funds (60%) and LBH Value (40%). The Adani Group is controlled by Gautam Adani, the fifth richest man in the world with an estimated fortune of $107 billion. The Adani Group owns 13 terminals and ports in ten different locations in the Indian subcontinent and in other ports in Australia, Myanmar and Sri Lanka.

Gadot’s CEO, Opher Linchevski, told Calcalist that "we are very happy to have won the tender for such a central infrastructure port. Gadot's supply chain relies on sea freight and port activity. We specialize in maritime transport and port activity and so the acquisition will ensure the continued growth of Gadot Group."

Regarding the high price offered, Linchevski said that in his opinion it is "a completely reasonable value, we are happy with the number." The owner of the Adani group, Gautam Adani, also tweeted on his Twitter account that he was “Delighted to win the tender for privatization of the Port of Haifa in Israel with our partner Gadot."

However, despite Adani and Gadot's statements that they are satisfied with the price in the tender, the large gap between the bids raises fears that they will withdraw from the deal - with the fine for such a withdrawal being a mere $4.3 million. The Israel Corporations Authority did not officially announce the group that came second, however, with the publication of the bidding process, the state made it clear that it reserves the right to contact the second or third-placed bidders if the top bid falls through for one reason or another.

Linchevski added that Gadot is particularly pleased with the "brave strategic partnership" formed between them and the Adani Group with which they have been working together on various business plans for several years. "All their activity takes place in India and the East. The advantage of the joint venture is that it is the western gateway to an extensive Asian network operated by the Adani Group. We hope to bring activity to the port of Haifa based on Asian shipping lines that are primarily Indian."

According to Linchevski, the Adani Group sees Gadot and Israel as the gateway to the Western world. "Apart from the connection between us, they see Israel as a strategic destination, and the relations that have warmed between Israel and India in recent years have pushed for this. They see Israel as a very convenient place to develop and enter the whole region."

Although they won the tender, it is still unclear whether the group will eventually operate the second largest port in Israel through which almost half of the goods arriving in Israel pass through. About two weeks ago, Calcalist revealed there was a question mark hovering over the possibility of the Gadot and Adani group winning the tender due to the probability of cross-ownership in the ports industry: controlling both the operation of Haifa Port and the southern chemical terminal in Haifa. Due to a similar precedent, Gadot had to give up winning the tender to operate the Dagon silo - and now the Competition Authority may choose to examine the consequences of the latest tender as well.

If it is indeed found that there are issues, Gadot will be forced to give up one of these activities, and it is not certain that it will actually choose the port of Haifa at the expense of its core business activity. However, the fact that most of the shares in the port will be held by Adani and not Gadot strengthens the chance that the deal will be approved. In this regard, Linchevski stated that "the deal is subject to the approval of the Israel Competition Authority and we are confident that the deal will be approved soon."

Gautam Adani (right) and Opher Linchevski.

Another fascinating part of the equation is the Adani company, or by its full name "Adani Ports and Special Economic Zone Limited”. The Adani Group is a huge corporation that operates mainly in India and was valued at about $200 billion last April. The corporation, founded by Gautam Adani in the late 1980s, is an infrastructure conglomerate that dominates many industries and markets in India and the East including quarries and resources, ports and logistics areas, natural gas, food, power, airports and communications. Adani is also the world's largest solar power producer and manages one of the five largest airports in the world, Mumbai Airport.

This is not the group's first deal in Israel, with one of the group's subsidiaries acquiring shares worth $20 million in Israeli technology company Foresight just this past April However, sources in the port industry wondered why Adani chose to leave the East for the first time specifically for Israel and Haifa.

Another issue that awaits the winner is a dispute between the port and the Haifa municipality over the operation and management of the commercial areas of the port’s seafront. The seafront areas are supposed to offer employment, tourism, recreation and trade areas that will correspond with the activities of cruises, maritime tourism and duty free to be operated by the port.

Haifa port is the second largest port in the country after the port of Ashdod. In 2021, 47% of all container cargo in Israel passed through the port (52% passed through the port of Ashdod). Apart from the cargo sector, the port of Haifa is the main port in Israel in terms of passenger traffic and cruise ships. Once the port of Haifa is privatized, the port of Ashdod will remain the only government-controlled port in Israel. The port's revenues in 2021 were NIS 845 million (approximately $244 million) and the net profit was NIS 271 million (approximately $78 million). 77% of the port's revenues were based on the import and unloading of containers, 12% were based on general cargo and cement, 4% on the import of vehicles, and 3% on transhipment (unloading containers from a ship and transferring them to another ship).

The winning group will operate the port of Haifa during a challenging but profitable period for ports. The ports and shipping companies are on the winning side of the global supply chain crisis, which is reflected in Israel, among other things, in traffic jams outside the ports. In terms of ports, ships waiting in the middle of the sea means captive customers and guaranteed income. However, the new operator will have to face competition from the neighboring Gulf port and the southern port of Ashdod, with the new private ports operated by the Chinese company SIPG and the Swiss company TIL Group, respectively.