Adani Group – Doors open for lending from Foreign and Indian banks

Post the debacle of the Hindenburg Report, the Adani Group has swung into action to change its public perception. A month has passed since the report came out and within this month, the Adani Group has taken many steps to ensure that its credibility among its lenders is not lost. One of the biggest allegations that the Group faces is that its debt levels are excessively high. Part of this is on account of the capital-intensive businesses that the group engages in sectors of power and infrastructure. After the allegations in the Hindenburg report, while it was expected that foreign and Indian banks may not fund the Group’s projects, on the contrary, many of them have come forward with a willingness to lend further.

This week, in an interaction with institutional investors, Adani Group’s CFO Jugeshinder Singh said that while foreign banks took ‘credit decisions,’ Indian banks took name decisions. Indian banks may find no issues with their exposure to the Adani Group and may be even willing to lend more, but the Group is reducing its exposure to Indian banks.

Many Indian banks, including the State Bank of India, have declared that they had no issues with the Adani Group loan exposure. Last week, Bank of Baroda’s CEO said that it was willing to keep lending to the Adani Group. Of all the debt the group has, over half is foreign debt in the form of overseas bonds and loans taken from foreign banks, and a fourth is from domestic banks. Singh said that the group’s gross debt is $30 billion.

Similarly, foreign banks, including Standard Chartered Bank and Citibank, have no plans to reduce their exposure to the group or stop their credit facilities. Foreign banks’ debt exposure to the Adani Group has been slowly gaining up over the years.

One of India’s biggest public sector bank, Bank of Baroda is willing to consider lending additional money to the Adani Group for the project to redevelop Mumbai’s Dharavi slum area which is among the world’s largest. Adani won the bid for this project last year. Being in the heart of Mumbai, this area has a great development and revenue generation potential which would take more than a decade to be completed.

Bank of Baroda will extend loans to the conglomerate if it meets the lender’s underwriting standards, said Sanjiv Chadha, chief executive officer, and managing director, adding that he’s not concerned about the market volatility around Adani stocks.

Rating agencies have also offered the Adani Group some respite. This week, S&P Global has affirmed its rating on Adani Green Energy at ‘BB+’ with a stable outlook. The American credit rating agency has removed the company from under-criteria observation. S&P expects the company’s restricted group to help meet repayment obligations due to its strong reserving mechanism.

Adani Green’s RG2 (Restricted Group 2) includes three entities namely Wardha Solar (Maharashtra), Kodangal Solar Park, and Adani Renewable Energy (RJ). The RG2 are the co-issuers and co-guarantors of Adani Green’s $362.5 million in green bonds which has a maturity of 20 years and a weighted average life of 13.47 years. According to media reports, S&P stated that RG2’s debt is fully secured with cash flow waterfalls which prioritise operating expenditure and debt service in times of disruption. Also, taking into consideration their ring-fenced assets, S&P believes the structure sufficiently protects investors.

S&P believes that the RG2 is currently not impacted by the governance risks and funding challenges for the larger Adani Group. Last year, on December 14, S&P placed Adani Green under criteria observation.

At the same time, another rating agency, Fitch Ratings also affirmed Adani Transmission’s restricted group’s notes at ‘BBB-‘ with a stable outlook. In a statement, Fitch said that Adani Transmission’s credit assessment is not directly affected by the alleged malpractices at India’s Adani group highlighted in Hindenburg Research’s report due to the ringfenced nature of these assets. 

With the willingness of Indian and Foreign banks to fund projects and credit rating agencies’ affirmation of the group’s creditworthiness, the Adani Group has managed to convey that its businesses are investible and lenders are still willing to fuel their expansion plans as well as current projects. As of now, shares of most Adani Group stocks have not yet bounced back from the lows they hit after the Hindenburg report. The Group is on a path to take the necessary steps to maintain the confidence of its investors as well as its lenders.

 

ABOUT THE AUTHOR

Ketan Sonalkar (SEBI Rgn No INA000011255 )

Ketan Sonalkar is a certified SEBI registered investment advisor and head of research at Univest. He is one of the finest financial trainers, with a track record of having trained more than 2000 people in offline and online models. He serves as a consultant advisor to leading fintech and financial data firms. He has over 15 years of working experience in the finance field. He runs Advisory Services for Direct Equities and Personal Finance Transformation.

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