BY S VENKAT NARAYAN
Our special correspondent
NEW DELHI, August 27: Indian billionaire Gautam Adani’s ports-electricity conglomerate is “deeply overleveraged” with the group investing aggressively in existing and new businesses, mostly debt-financed, CreditSights, a unit of the Fitch Group, said in a report. The aggressive expansion pursued by the Adani Group, led by Asia’s richest person, has put pressure on its credit metrics and cash flow, CreditSights said in the report on Tuesday. He warned: “In the worst case scenario” this could escalate into a debt trap and possibly a default.
“We see little evidence of equity injections from developers into group companies, which we believe is necessary to reduce leverage in their stretched balance sheets,” the agency said. He was referring to the injections of funds from the founders of the Adani Group, known as “promoters” in India.
The seven publicly traded Adani companies fell 2% to 7% in trading on Tuesday. A representative for the group did not immediately respond to a request for comment on the report. The CreditSights report comes after a few years for Adani, which has been on a rapid diversification spree, expanding from an empire centered on ports and coal mining to include airports. , data centers and cement as well as green energy. The group recently pledged to invest $70 billion in renewable projects.
These moves have not only boosted Adani’s stature in India, but also his fortune, as his net worth topped $135 billion this year. He is also increasingly moving into male-dominated spheres whom he replaced as Asia’s richest man, fellow countryman Mukesh Ambani of Reliance Industries Ltd.
The report sheds light on the multiple loopholes that could hamper Adani’s ambitions and the stratospheric flight of his companies’ stocks. CreditSights analysts, however, said they took “comfort” from the group’s strong relationships with banks as well as Indian Prime Minister Narendra Modi’s administration.
Here are some other highlights from the report, authored by Lakshmanan R, Rohan Kapur and Jonathan Tan of CreditSights:
Adani Group Enters New Unrelated, Capital-Intensive Business, Raising Execution Oversight Concerns;
Strong potential competition between the group and Reliance of Ambani to dominate the market could lead to “reckless financial decisions”;
Adani Group is also exposed to moderate levels of governance and ESG risks
The group has a “strong track record in building strong and stable businesses” through its flagship product, Adani Enterprises Ltd., and has built a portfolio of “stable infrastructure assets tied to the smooth running” of the business. Indian economy;
Its founder “has a solid relationship” with the Modi government and has benefited from “political tailwinds”;
CreditSights remains “closely attentive” to the group’s growing appetite for expansion, which is largely financed by debt.
A self-made billionaire who started his business as an agribusiness in the late 1980s, Adani has also been a busy trader this year. The Adani Group acquired the port of Haifa in Israel in July for $1.2 billion and the Indian cement works of the Swiss company Holcim for $10.5 billion in May, in addition to nearly three dozen acquisitions, large and small. It is also expanding into media, healthcare and digital services.
The group owns India’s largest port operator, coal miner, town gas distributor and private sector airport operator and aims to create the largest renewable energy generator in the world.
Investors have applauded the tycoon’s ability to scale his business quickly, spurring massive stock rallies in Adani companies even during the pandemic when most companies have suffered. Adani Enterprises and Adani Green Energy Ltd. have jumped more than 1,300% since the start of 2020. Adani Total Gas Ltd. rebounded around 1,900% and Adani Transmission Ltd. by more than 900%, while the benchmark S&P BSE Sensex index jumped by nearly 42% over this period.
But it’s this dizzying growth that worries credit watchers, including CreditSights. The research firm recognizes that the majority shareholder status of the founding Adani family in most of the listed companies in its group means that it will do everything possible to support them.
“All of the family’s fortune and reputation is tied to Adani Group companies,” he said. “Having such ‘skin in the game’ could imply that the family would go to great lengths to avoid default by any of the entities, as any significant liquidity or solvency issues in a business would likely have a contagion effect on the family. evaluation of the rest. companies too. »