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Adani Group
The controversy-hit Adani Group on March 7 announced that it has prepaid the Rs 7,374 crore (more than $900 million) share-backed financing made by various international and domestic financial institutions, about two years ahead of its latest maturity date. The conglomerate pledged to prepay all remaining loans by the end of March.
The move is a part of the plan to cut overall promoter leverage backed by shares of Adani Group’s listed companies, and repay all share-backed financing by March 31 this year, irrespective of later maturity dates. The repayment of the massive amount will allow the release of four of the Group’s listed shares – 155 million shares (11.8% of promoters’ holding) of Adani Ports & Special Economic Zone, 31 million shares (4%) of Adani Enterprises Limited, 36 million shares (4.5%) of Adani Transmission Limited, and 11 million shares (1.2%) of Adani Green Energy Limited.
“In continuation of promoters’ commitment to reduce the overall promoter leverage backed by Adani listed company shares, we would like to inform that we have prepaid share backed financing of Rs 7,374 crore ahead of its latest maturity in April 2025,” the statement said.
Together with the repayments made in February, Adani Group has until now prepaid about $2,106 million of share-backed financing.
Incidentally, the development comes right when the conglomerate starts its line-up of road shows in London, Dubai, and across the US. The road show tour might be an attempt to boost investors’ lost confidence, both at home and globally after the shares of 10 of the Group’s listed companies went on a downward spiral following a scathing report by US short-seller Hindenburg Research.
If one can recall, Hindenburg Research reported “substantial” debt levels at Adani Group in January while claiming that the Group has engaged in accounting fraud and used offshore shell companies to push stock prices up.
The report gained the attention of investors especially because just a few months prior, in September 2022, CreditSights, a Fitch Group unit, claimed that the Group was “deeply overleveraged” as it used debt to expand its port-to-power empire.
Although Adani Group was quick to defend itself and refute the claims made by Hindenburg, about $135 billion of market value was wiped off in a month from Adani Group’s listed companies.
The Group is now focusing on slow and steady recovery; a scrapped Rs 7,000 crore coal plant purchase, dropped bid for stake in energy trading firm PTC, and cost-cutting initiatives, stand witness.
Remarkably, in the last four years, Adani Group’s gross debt has doubled, with almost $2 billion worth of foreign-currency bonds approaching repayment deadlines in 2024. The gross debt has ballooned from Rs 1.11 lakh crore in 2019 to Rs 2.21 lakh crore in 2023, according to a presentation made to investors last month.
The net debt after including cash stood at Rs 1.89 lakh crore in 2023.
Share Price Gains
Share price of Adani group stocks jumped by 30% in two sessions after it prepaid share-backed financing worth Rs 7374 crore. This move has reassured investors that the conglomerate’s balance sheet is strong and it has an impeccable track record of debt servicing.
In the wake of the selloff triggered by the Hindenburg Research report, which had cut the value of the business empire of Gautam Adani to about $120 billion, Adani group companies are looking to claw back investor confidence. The conglomerate has a number of initiatives in place to restore investor trust, including refocusing on slow and steady growth over the past year and scrapping some projects that were fueled by debt.
On Tuesday, Adani group announced that it has prepaid loans worth $902 million or $7374 crore to foreign banks and Indian lenders ahead of their maturity in April 2025. This move is aimed at calming concerns over the total borrowings of the industrial house’s promoters led by Gautam Adani with shares of group companies as collateral.
The remittance of the loans will help release pledges on 31 million shares, or 4% stake, in Adani Enterprises, 155 million shares in Adani Ports and Special Economic Zone, and 1.2 per cent and 4.5% stakes in Adani Green Energy and Adani Transmission. The repayments will also help Adani Group improve a leverage metric at a time when its financial health and that of other listed entities have come under intense scrutiny.
A month after the devastating report by US short-selling investment firm Hindenburg Research lopped off $135 billion in market value from its listed companies, the Adani group has started to win back investor confidence. It is now trying to allay worries over leverage and debt by holding roadshows around the world, as well as by reducing its exposure to offshore shell companies that were alleged in the Hindenburg report to facilitate corruption and tax evasion.
The share price gains that have been experienced since Adani group repaid the share-backed financing worth Rs 7374 Crore have helped investors to buy back into the company’s shares, as well as those of its listed entities. As a result, stock prices of Adani group’s Mumbai-listed shares have surged by 30% in the past two sessions.
Reduction in Leverage
The Adani Group has prepaid share-backed financing worth Rs 7374 crore as part of its plan to reduce overall promoter leverage backed by shares of its listed companies. The move is aimed at easing concerns among investors about its total debt leverage as well as the number of shares pledged against loans from banks.
In the wake of the US-based Hindenburg Research report that had slashed market value in the ports-to-power conglomerate, the company has taken steps to regain confidence of investors both at home and abroad. The company’s management last month held roadshows in Singapore and Hong Kong and is scheduled to tour Dubai, London, and the US next week to reassure investors about its financial stability.
It will also use its cash surplus for a debt payment to improve the ratio of net debt to operating profit to about 2.5 times by March 2024, Karan Adani, CEO of Adani Ports and Special Economic Zone, said in a statement on Tuesday. The decision will also improve the financial strength of the company and reduce its borrowings denominated in foreign currency, he added.
On a separate note, the Adani Group’s gross debt is projected to remain stable in the next six months and its cash balances are forecast to increase by over Rs 220 billion. It has a debt to Ebitda ratio of 3.2 times and is in the process of reducing its exposure to public sector banks, the group said.
Another rating agency CreditSights has said that the group’s “debt-funded future acquisitions” can start putting pressure on ratings of its company’s shares and bonds, and could eventually lead to “massive debt trap”. The credit agency said there was a high likelihood of “material refinancing risk or near-term liquidity requirement.”
However, Adani Group says it is confident that its debt is fully covered by equity as well as cash, and its businesses operate on long-term annuity contracts that generate assured and consistent cash flows without any risk of market volatility. Moreover, the group has a very low level of net debt to cash at 2.26 trillion rupees as at the end of September and is on track to meet that target, it said in a credit report.
Recovering Investor Confidence
The recovery of investor confidence that Adani group has experienced after it repays share-backed financing worth Rs 7374 crore was a welcome relief to shareholders. The move, which comes ahead of the latest maturity in April 2025, will allay some of the concerns that have been raised in the past about the conglomerate’s leverage.
In the past few sessions, Adani shares have seen a significant rebound. It is all because of a sale of minority stakes in four companies – Adani Green Energy, Adani Ports, Adani Transmission and Adani Enterprises – to US-based boutique firm GQG Partners for a total investment of Rs 15,446 crore.
It was these investments that helped the company get back on track after it took a hit in January, when a report by Hindenburg Research made allegations against the company, including fraudulent transactions and stock manipulation. The report wiped off $135 billion of market value from Adani Group’s listed companies.
However, there are still several questions left unanswered. For one, there is the ongoing debt crisis in Europe and the US, which have been a source of concern for investors. This, coupled with the lack of progress in economic recovery, has prompted many to lose faith in the economy and the financial markets.
To regain investor confidence, it is important for companies to focus on segments and business lines that are performing well and delivering high returns. This will help them regain market confidence and attract capital to fund growth projects.
This will help a firm survive in this tough economic environment. Similarly, it is also critical to prioritize business lines that have a good track record of generating revenues and profits and can be scaled quickly.
In the meantime, firms should take measures to boost their cash flow and profitability in the short term, as the current economic situation is prone to further disruptions. Hence, companies should focus on enhancing the strength of their balance sheets to reduce their exposure to debt and improve their operating margins.
Global Roadshow
The Adani group is attempting to rebuild confidence among investors after a short-seller’s critical report last month saw seven of its listed companies lose about $130 billion in market value. The ports-to-power conglomerate has been taking a series of measures to address concerns, including hiring legal and communication teams, cutting expenses and repaying debt.
The group has repaid share-backed financing worth Rs 7374 crore (over $900 million) on Tuesday, as it looks to ease investor concerns over leverage and debt to win back support. The company will release 155 million shares, representing 11.8 per cent of promoters’ holding in Adani Ports and Special Economic Zone; 31 million shares, or 4% of the promoters’ stake in Adani Enterprises; 36 million shares, or 4.5 per cent of the promoters’ stake in Adani Transmission and 11 million shares, or 1.2 per cent of the promoters’ stake, in Adani Green Energy, it said in a statement.
This repayment is in line with the company’s commitment to reduce overall promoter leverage backed by shares and is a part of its plan to prepay all share-backed loans by March 31, 2023, Adani group said in a statement.
While the decision to repay a large portion of debt ahead of its maturity date will allay some concerns, it will be difficult for the Adani group to raise money from the market without causing further damage to its credit profile, analysts say. However, with this prepayment and a recent investment from GQG Partners, which reportedly increased its stake in the group to 18.6%, it may be able to attract more funding as its share prices recover.
According to analysts, this is an important step for the group, as it will help it re-establish its reputation as a strong and financially responsible company. It will also provide the group with cash to meet debt maturities in the coming years, and to pay its bills and dividends.
In recent days, the Adani group has been holding roadshows to reassure investors that the company is under control and that its debt is being repaid. These meetings are scheduled to be held in London, Dubai and several US locations between March 7 and 15.