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Business News/ Companies / News/  Adani Group to tamp down capex roadmap
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Adani Group to tamp down capex roadmap

Conglomerate intends to pay back all of the loans raised against shares
  • Senior bankers said the Adani group’s fight to redeem itself would depend on how well the group manages the liquidity crisis
  • Promoters may put more equity in group firms for funding capex plans. (Photo: Reuters)Premium
    Promoters may put more equity in group firms for funding capex plans. (Photo: Reuters)

    MUMBAI : The Adani group plans to trim its capital spending plans while providing more collateral in the form of stock pledges to lenders after it pulled its 20,000 crore equity fundraising plan last week due to a stock rout set off by Hindenburg Research’s fraud allegations against the conglomerate, two people close to the development said.

    “At Adani, there is a rethink on the capex. The group may moderate its capex plans in some of the businesses. So, instead of targeted growth over 12 months, they may look at a time frame of 16-18 months for that quantum of growth in certain businesses," said one of the two people, requesting anonymity.

    Graphic: Mint
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    Graphic: Mint

    The conglomerate will return to its usual pace of growth once normalcy returns.

    Meanwhile, the group will use alternative funding channels, including its 28,000 -30,000 crore worth of cash from internal accruals, promoter equity funding and private placements to fund projects, the people said.

    Adani Group generates 57,000-60,000 crore of Ebitda yearly, and out of this, around half is available to the group as cash, which the group plans to use for capex, working capital requirements and meeting immediate repayments, which are worth around $300 million over the next six months, they added.

    On pledges, the move to provide more collateral is after stocks of group companies faced a rout in the market last week after the Hindenburg report levelled allegations of stock manipulation and accounting fraud.

    The promoter group’s share pledge in Adani Ports, Adani Transmission, Adani Enterprises, and Adani Green stood at 17%, 7%, 4%, and 3%, respectively, as of 31 December, according to company disclosures. These pledges are expected to increase by about 20%, with Adani Ports’ share pledge, for example, climbing to 20.6% of the promoter’s holdings.

    However, the group has only secured $400 million by pledging shares as collateral against its sanctioned credit limit of $9 billion. Due to declining share prices, additional equity had to be added to maintain the loan-to-collateral value ratio of 1:2

    Adani group will plan to completely reduce its share pledges, an executive close to the development said, requesting anonymity.

    “The company will pay down all share-backed loans; that will happen very shortly. Second, they will build up more cash buffers in these businesses, they are already very strong, and this will be demonstrated next week when the results are out," he said.

    He added that the asset-backed loans at operating company levels have nothing to do with share prices, and these loans are stable and are as healthy as they were before the Hindenburg report came out.

    “In share-backed loans, the group had to post more collateral in the form of shares because the share prices were going down. You will see that the share pledges have gone up slightly in Adani Ports, Adani Transmission, Adani Green and some increase in Adani Enterprises," he said.

    “Overall, as a portfolio, since about FY19, the company started to reduce the share pledges, and in 2020 when covid happened, there was a steep decline in stock prices, after which they significantly reduced pledge positions. Therefore, you the group’s overall pledge positions are way lower compared to what it was before FY18. 2020 is when it peaked when 40% of Adani Ports was pledged," the executive said.

    “From the lenders’ perspective, they are comfortable because they know that when they are looking at this share fall, it is a very temporary fall, and the covenant requires us, depending on the transaction, to top it up around 1.8-2X. So at any point in time, they have an 80-100% cover," he added.

    The executive said that the group is not looking at asset sales to shore up liquidity.

    “The company is not thinking about any sale per se, and this is not the time to make an asset sale. Because today, they will just not get the right price," he said.

    As alternative funding channels, the two people cited above said Adani Group would use internal accruals and private placement routes such as QIP or preferential allotment in equities to raise capital after Adani group stocks stabilize and volatility decreases. The amount of capital to be raised via QIP or preferential allotment will be decided at a later stage, but some investment bankers said the group could be raising $1.5-2 billion over the next few months.

    Adani Group promoters are also likely to put more equity in the group firms for funding capex plans, said one of the two people.

    Adani Group’s total outstanding debt is around $22 billion, of which around 30-33% is from Indian lenders, said the two people. Around $7.5 billion has been disbursed out of over $9 billion sanctioned by various domestic banks. The group can avail the unutilized $1.5 billion without any further collateral, the two people said.

    Following the Hindenburg report on 24 January and the conglomerate’s decision to cancel its share sale, the group’s stocks have plunged, wiping out over $100 billion in market capitalization. Stocks of Adani’s newly acquired cement firms, Ambuja and ACC too, have fallen over the past week, despite having sufficient internal cash and no debt obligation at the company level.

    However, since most of the group’s assets are cash-generating, overseas bonds are coming due only by FY25, and the group’s projects are well-commissioned with adequate long-term financing, Adani Group is currently not facing any liquidity risk, according to the two persons. “Banks have not asked any Adani company to bring in additional collateral for the existing sanctioned limits. Also, most of the assets are cash-generating with strong Ebitda. And the $4.5 billion loan taken for Ambuja and ACC acquisitions will be repaid from the cash the two cement companies are generating. They have around 8,000- 10,000 crore of cash available. They have zero debt and are clocking over 6,400 crore of Ebitda. As such, Ambuja and ACC are self-sustainable firms. The incomes from these two firms are sufficient to repay the $4.5 billion loan taken from foreign banks," said the first person.

    Adani Group has three bonds worth $1.9 billion coming due in FY25. Adani Ports bonds worth $650 million are due for maturity in July 2024, Adani Green’s bonds of $500 million are due in May 2024, and another set of bonds of Adani Green of $750 million will come up in September 2024.

    “The rate of interest is somewhat on the higher side outside India. So, Adani can refinance overseas bonds by getting loans from Indian banks at a better cost of capital. And to avail such loans for refinancing overseas bonds, Adani Group has adequate assets," said the person.

    However, senior bankers said the Adani group’s fight to redeem itself would depend on how well the group manages the liquidity crisis.

    “The Adani issue is not about solvency. The group is a cash flow machine," an official with a state-run bank said. The challenge would be at the time when the repayment of forex loans occurs.

    At foreign banks, when such tumult is seen in the bond and stock markets, typically, the responsibility to retrieve the situation will move from the corporate lending department to the risk management team.

    While there is enough capacity with Indian banks, the Indian banks will not accelerate the disbursals in the current scenario.

    And in foreign banks, the risk management teams will control. There are various covenants that could trigger, the same banker said. “Again, the issue is not fundamentals or of the underlying companies of companies," the banker reiterated. “He has to sort out the liquidity issue."

    Buying time during such events is tough. “If you’ve breached covenants, there are acceleration clauses," the banker said.

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    ABOUT THE AUTHOR
    Anirudh Laskar
    Anirudh reports on significant corporate matters including large mergers and acquisitions, India's emerging e-commerce sector and regulatory issues in the corporate and financial services industry. Over the past 17 years, he has covered many beats including banking, NBFCs, aviation, automobile, insurance, markets, SEBI, IRDAI, mutual funds, investment banking, private equity, deals, and conglomerates.
    Catch all the Corporate news and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
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    Published: 06 Feb 2023, 12:26 AM IST
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