Adani Group's Debt Pile and Dependence on Global Banks

In the past year, Adani Group's pile of debt has increased by almost 21% and the share owned by global banks has increased by nearly a third, in accordance with Trade Algo's updated snapshot of the company's current financial position available last week.

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It was revealed at the end of March that 29% of the conglomerate's borrowings were with global international banks - a category that did not appear on the group's credit list seven years ago - according to information gleaned from individuals familiar with the group's inner workings and from investor presentations. 

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However, there are also indications that the ability of this company to repay its debts improved as well, as shown by data. 

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The Adani Group's gross debt has increased

A look at the shifting state of its finances and the mix of its creditors illustrates just how much billionaire Gautam Adani's Gujarat-based group has prospered in recent years. He has cultivated worldwide business ties, and his company even has interests in Australia and Israel, despite its location in India. 

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There is no doubt that they have international engagement, but with it comes heightened scrutiny, as demonstrated by the case of US shortseller Hindenburg Research alleging extensive corporate fraud on its part. 

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It is not surprising that stock prices and dollar bonds have not fully recovered from the selloff that occurred in the wake of Hindenburg even after Adani executives have repeatedly denied the allegations and sought to reassure investors with in-person meetings and debt repayments. 

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According to two global rating firms, Adani entities can expect to be able to raise money with ease if their debt ratio continues to improve. However, two global rating firms have already said they expect to see an increase in these costs in the future.

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As of the end of last month, Adani Group had adjusted its financial position as a result of increased operating expenses totaling $228 million. When contacted by Bloomberg, a spokesman for the company did not comment immediately on the figures.

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Adani Group Firms' Debt Metric Has Improved

A key metric for assessing a company's ability to service its liabilities has shown an improvement over the past few years for Adani firms, according to the data seen by Bloomberg. It was estimated that the net debt ratio was 3.2 in the 2023 fiscal year, which ended in March, compared to the run-rate earnings before interest, tax, depreciation, and amortization ratio. According to an Adani report from last September that was published in 2013, this ratio was 7.6 in 2013. That is a substantial drop from what was stated in 2013. 

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As a result of extrapolating the recent financial performance of a company, run-rate Ebitda is calculated. 

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Based on the data that was available to us, Adani Group was interested in further reducing its debt. 

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In 2017, CreditSights said Adani's finances were "deeply overleveraged." But the group countered that companies' debt burdens have been reduced. 

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A report from people familiar with the matter, who declined to be named because they were not authorized to speak about it publicly, reported that seven of Adani's main listed companies had a gross debt of 2.3 trillion rupees ($28 billion) as of March 31. As the conglomerate expanded at an unprecedented pace from 2019 to 2019, borrowings have steadily increased. 

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In late January, Hindenburg's report was released and the fallout was resulting in Adani Group reducing its grand ambitions in order to refocus on its core areas, such as ports, power and green energy. As Bloomberg reported last month, it has scaled back its grand ambitions on petrochemicals, aluminum, steel and road projects. 

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There has been a significant increase in bond coverage over the past few years, and the total share of bonds borrowed by the group in March amounted to 39%, up from 14% in 2016. 

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Global banks are increasingly involved in Adani's borrowings

However, there are still some instances where local borrowings can be quite large. State Bank of India, India's largest lender based on assets, has an exposure of about 270 billion rupees ($3.3 billion) to the group, according to its chairman in February.

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There is a risk that over the next few years, there will be a huge jump in funding costs and refinancing needs that can cost billions of dollars to banks and institutional investors alike, according to Moody's Investors Service. 

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It was reported earlier this month by Bloomberg that the conglomerate could not find a lender for a refinancing of its debt due to a lack of material refinancing risk, which in turn would make it easier to meet its near-term liquidity requirements as there won't be any big debt repayments coming up in the near future.

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In the midst of rapid growth, Adani Group firms' gross assets soared

There has been an upside to Adani's growth and diversification — more than doubling in the past five years — which has led to a steadily increasing pile of assets. As a diamond trader in the 1980s, the first-generation entrepreneur quickly gained a reputation as the wealthiest man in Asia. His empire started with ports and coal trading, but has been expanding into airports, renewable energy, data centers, cement, and media in the past few years.