John D Rockefeller was once quoted as saying, “Competition is a sin.”
Rockefeller, the wealthiest American of all time, was not a big fan of competition in business. He was one of the first modern businessmen who redefined monopoly, in his case through his company Standard Oil.
In 1870, Rockefeller, together with his brother William and other friends, established the Standard Oil Company in Cleveland, Ohio. By 1873 Standard Oil had acquired about 80% of the refining capacity in Cleveland, which constituted roughly one-third of the US total.
The company began to purchase or drive out of business oil refiners across the United States through various cutthroat techniques such as temporarily undercutting the price of oil, or secretly buying up or creating new oil-related companies to put pressure on their competitors.
To give Standard Oil an edge over its competitors, Rockefeller secretly arranged for discounted shipping rates from railroads, using its large and growing volume of oil shipments as an incentive.
By 1878 Rockefeller had attained control of nearly 90% of the oil refined in the United States.
Standard Oil focused on creating a monopoly initially through horizontal integration by gaining control over other small refineries, and then through vertical integration by acquiring pipelines, railroad tank cars, terminal facilities, and barrel factories, which helped throw competitors out of business.
The enormous profit of Standard Oil also encouraged investors to support its monopolist behavior. Standard Oil’s astonishing success became an ideal for other businessmen.
Now, one businessman in India exactly following Rockefeller’s footsteps is Gautam Adani.
The modern Rockefeller of India
Gautam Adani is the founder and chairman of Adani Group, which is engaged in multiple businesses, including ports, edible oil, airports, and power generation and distribution. The group has seven listed companies, namely Adani Enterprises, Adani Ports, Adani Power, Adani Total Gas, Adani Green Energy, and Adani Transmission.
Exactly a year ago I wrote that soon Adani would surpass Mukesh Ambani. And this year, on April 14, Gautam Adani became the fifth-richest person in the world, surpassing legendary investor Warren Buffett. He is the only Indian to enter the centi-billionaires club. His net worth as of last month was US$125 billion.
Mr Adani’s friendship with Prime Minister Narendra Modi is time-tested. Their friendship goes back to 2003, when none of the country’s leading businessmen publicly stood by Modi’s side because of the handling of the Gujarat riots. But Adani broke ranks with the old business elite, potentially risking his future. And this gamble paid off.
Gautam Adani is today one of the most visible tycoons in the country, whose prominence has accelerated in the years since Narendra Modi was elected prime minister in 2014. Since Modi came into office, Adani’s net worth has increased 17.5 times in less than eight years, from $7 billion to $125 billion.
So what’s fueling Adani’s soaring wealth compared with his competitors? Is it innovation, or monopoly?
In 2018, the government of India approved the privatization of six airports. It has also relaxed the rules to widen the pool by even allowing companies without any prior experience to bid for the airport. Ironically, the Adani Group, which didn’t have any history of running airports, scooped up all six.
On December 6, 2021, the minister of state for civil aviation, General V K Singh, informed Parliament that the Airports Authority of India had leased out eight airports to private companies, seven of which were managed by Adani Enterprises Ltd. There was one clear winner from the rule change, that is, Adani Enterprises.
The company that forayed into the airport sector in 2019 now controls one-third of India’s total international passenger traffic, a marvelous achievement in a very short time. For any new company without any previous experience in that particular domain, grabbing such back-to-back big projects among multiple established players was bound to raise serious questions.
Apart from that, in the last eight years, Adani Group has become the country’s largest private port operator, coal importer, coal miner, and private power producer, and also the largest importer of edible oils, outclassing all its rivals in their respective fields.
Adani Group stock has emerged as the biggest wealth creator since the reaction to the Covid-19 pandemic hit the Indian stock market. In the last 25 months, all the listed companies of Adani Group have rewarded investors handsomely.
But competition is a sign of a healthy economy. It can yield lower prices, better quality, more choices, innovation, greater efficiency, and increased productivity. Currently, the Indian economy is losing its competitiveness.
How debt is fueling Adani fortunes
The Adani Group, which commenced as a small commodity trading firm in 1988, is now a leader in infrastructure, a sector where many businessmen burned their hands.
The strategies adopted by Gautam Adani are quite similar to those that were adopted by John D Rockefeller in his day. While Adani Group may claim to be a contributor to nation-building, its borrowings are beyond its comfort zone.
Leading investment bank Credit Suisse warned in 2015 through its “House of Debt’’ report that the Adani Group was one of the 10 conglomerates under “severe stress” that accounted for 12% of banking-sector loans. Yet the group has been able to keep raising funds consistently, both domestically and from foreign investors.
The aggregate debt for the group’s listed entities had grown by 63% from 2015 to around $21 billion in March 2021.
Recently Adani Group finalized an underwriting with the largest public-sector bank of India, SBI, to seek a loan of close to $1.5 billion for its Navi Mumbai airport project. Adani’s voracious appetite for deal-making and political connection has ensured that nothing comes in his way.
Oxfam India recently reported that during the Covid crisis, India’s richest doubled their wealth to $720 billion, while 460 million Indians have fallen into extreme poverty. If the current trends and political support continue, Gautam Adani will be one of the top three richest people in the world within two years.
As the saying goes, “Wealth is neither created nor destroyed, it’s just transferred.” We are witnessing the biggest wealth transfer in post-independence India.