Adani’s new cash figures draw investors’ scrutiny

Adani group’s decision to club non-current investments and security money put up against bank guarantees as part of cash equivalents has raised concerns among analysts about whether the new classification portrays an accurate picture of the group’s ability to meet financial obligations

Varun Sood
Updated20 Feb 2023, 06:43 AM IST
Adani Group said last week it was considering independent evaluation of issues relating to legal compliance, related party transactions and internal controls following the Hindenburg report
Adani Group said last week it was considering independent evaluation of issues relating to legal compliance, related party transactions and internal controls following the Hindenburg report

The Adani group’s decision to club non-current investments and security money put up against bank guarantees as part of cash equivalents has raised concerns among analysts about whether the new classification portrays an accurate picture of the group’s ability to meet financial obligations.

In a 14 February filing to the exchange, the Adani group said it had 31,646 crore ($3.9 billion) in cash and cash equivalents as of 31 December 2022. However, a footnote in the filing said that the cash balances included “cash & cash equivalents, bank balances, current investments, the market value of marketable securities (non-current investments), the balance held as margin money and deposit for more than 12 months”

Graphic: Mint

This is in contrast to how Adani group defined cash and cash equivalents until the end of the previous year when cash equivalents were defined as “short-term balances” with an “original maturity date of three months or less”. Notably, the companies did not include non-current investments as part of cash equivalents.

With Adani group stocks plunging following allegations of accounting fraud and stock manipulation by New York-based Hindenburg Research, investors are closely monitoring the group’s liquidity and debt-servicing ability. The Adani group has, however, denied the US short seller’s allegations and called its report maliciously mischievous.

Adani’s 10 listed entities only spell out detailed cash and cash equivalents every six months. For this reason, the individual cash and cash equivalents of each of the companies at the end of the December quarter cannot be ascertained.

Last year, seven public companies of the group, including Adani Enterprises Ltd, Adani Ports and Special Economic Zone, Adani Power, Adani Green, Adani Total Gas and Adani Wilmar, had a combined 11,205.62 crore in cash and cash equivalents. Margin money deposits, which include security money against bank guarantee and letters of credit, totalled 10,880 crore.

Including this margin money, the cash and cash equivalents increased between 45% and 791% across the seven listed firms for last year, according to an analysis by Mint (see chart).

A spokesperson for the group declined to comment on a detailed questionnaire sent on Thursday.

But an executive of the group, on the condition of anonymity, said: “A review of notes was conducted by Grant Thornton in FY22. This was done to ensure consistency in notes across the listed portfolio of companies. The changes, as recommended by our review, were adopted by all listed companies. In relation to the specific question on “non-current investments”, it may be noted that certain deposits kept by listed companies with various banks as fixed deposits have a term of over one year and thus qualify as non-current”.

An email sent to a spokesperson for Grant Thornton seeking comment went unanswered.

Adani’s classification of non-current investments and security money as part of cash equivalents is inconsistent with accounting standards under the Companies Act, which defines cash equivalents as investments with a maturity of less than three months.

“Cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes,” reads the Indian Accounting Standard (Ind AS) 7. “For an investment to qualify as a cash equivalent, it must be readily convertible to a known amount of cash and be subject to an insignificant risk of changes in value. Therefore, an investment normally qualifies as a cash equivalent only when it has a short maturity of, say, three months or less from the date of acquisition. Equity investments are excluded from cash equivalents unless they are, in substance, cash equivalents, for example, in the case of preference shares acquired within a short period of their maturity and with a specified redemption date.”

Companies don’t club non-current investments, which are long-term investments like investments in unlisted subsidiaries and margin money deposits as cash equivalents, because they cannot be converted into cash when needed. Investments in mutual funds can be converted into cash quickly, and so is part of cash equivalents.

“Think of an Adani company having a power project with a state government. Now such a project would require the company to submit a bank guarantee. This bank guarantee would require the company to give some security money. This security money, even though it belongs to the company, cannot be encashed by the company as it stands against the bank guarantee...Companies cannot encash these amounts quickly, and for this reason, including these instruments as cash equivalents is misleading,” said an investor on the condition of anonymity.

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First Published:20 Feb 2023, 06:43 AM IST
HomeCompaniesNewsAdani’s new cash figures draw investors’ scrutiny

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