BackAdani dollar bonds set to face further pressure
Credit Suisse is the first bank to pull the trigger as it stopped accepting bonds of Adani group as collateral against the leverage to its private banking clients, according to a Bloomberg report
PremiumAdani group’s overseas bonds could face a bigger rout as rating agencies examine the companies’ debt risk and banks take a relook at providing leverage against these bonds.
The yields on Adani Green Energy’s dollar bonds maturing in 2024 for instance spiked to 24% on Wednesday from 7.3% on 24 January, since the US-based Hindenburg Research alleged that the group used a web of firms in tax havens to overstate revenue and stock prices.
Credit Suisse is the first bank to pull the trigger as it stopped accepting bonds of Adani group as collateral against the leverage to its private banking clients, according to a Bloomberg report. The Swiss lender’s private banking arm assigned a zero-lending value for notes sold by Adani Ports and Special Economic Zone, Adani Green Energy and Adani Electricity Mumbai Ltd.,said the report.
Fund managers believe that this move may cause other banks to follow suit, reducing the leverage against these bonds. In contrast, Credit Suisse’s in-house brokerage upgraded Adani Ports & SEZ to outperform from neutral, based on attractive valuation.
“When there is a leverage reduction, there is a margin call immediately and those investors will have to top-up the margin and make up for the difference. or they will have to sell the bonds. When one large house like Credit Suisse reduces the leverage on these bonds, there will be some ripple effect and several other banks could reduce the leverage from 70-80% to 30-40%," said Bala Swaminathan, CEO and founder, SAIML.
“The market is pricing the Adani bonds at 30% YTM, that’s the risk premium they have built in," he said.
Typically, the potential trigger for lowering the lending value is a rating downgrade. However global rating agencies are yet to announce any change in ratings on Adani group’s dollar bonds, which is currently between BB- to BBB-.
Domestic rating agency ICRA for instance on Wednesday said that it is monitoring the impact of these developments on its rated portfolio in Adani group, especially the financial flexibility of the group with key monitorables being access to domestic and international capital markets and banking channels, pricing of debt, tightening of debt covenants, recall or acceleration of debt facilities and refinancing. While the ICRA-rated Adani group entities do not have any immediate refinancing requirement, it is expected for some of the entities from FY2025 onwards, it said.
Fund managers believe that borrowing cost for Adani group companies could rise as the yields on the overseas bonds come under pressure. They point out that some of the highly leveraged companies like Adani Greena and Adani Gas would find it difficult to raise funds from the overseas market in the near future.
“We expect investors to be on the sidelines till the dust settles. The credit spreads will remain wide on the back of the risk aversion. The market participants await the assessment of the rating companies and other banks decision on extending leverage on the back of these bonds. Said Hemant Mishr, CIO, S CUBE Capital," said Hemant Mishr, Co-founder & CIO, S CUBE Capital.
On Tuesday Adani Enterprises’ ₹20,000 crore follow on public offer got bailed out by institutional investors and family offices of high networth individuals.
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