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Business News/ Companies / News/  Banks  may  let  Adani Group use  sanctioned  loan
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Banks  may  let  Adani Group use  sanctioned  loan

Exposure of banks is not at risk, and so, they would disburse sanctioned limits if and when the group reaches out, a banker said

The Adani Group headquarters in Ahmedabad (Photo: Bloomberg)Premium
The Adani Group headquarters in Ahmedabad (Photo: Bloomberg)

Adani Group’s domestic lenders do not plan to cut off the conglomerate from utilizing sanctioned but unused credit lines for fear their action could backfire and lead to defaults, four bankers said.

It is estimated that out of the $9 billion exposure that Indian banks have to the group, about $1.5 billion is yet to be used. Bankers said there is no internal decision to curtail Adani group’s sanctioned loans, be it in term loans or working capital. While term loans fund capital expenditure, working capital is utilized for operational expenses.

Graphic: Mint
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Graphic: Mint

“It would be foolish to stop disbursing sanctioned loans as there is no repayment delay, let alone default," said one of the four bankers cited above. All of them requested anonymity.

“If we do not let him draw the credit lines, work on existing projects might stop, and that is not good for our exposure," the banker said.

Mint has reviewed a copy of the document that suggests Indian banks are willing to increase the sanctioned limits from $9 billion to $11 billion.

“The Adani group is in constant dialogue with banks. Banks have asked about capex plans, and Adani has clarified its stance. Most of the loans are backed by cash-generating assets such as renewable power projects, long-term PPA projects, land banks, cash flows etc.," said yet another banker directly familiar with the development.

After a steep fall in shares of Adani Group firms last week, banks have held talks with top officials from the group.

“But, so far, banks have not asked for additional collaterals for the existing disbursed or sanctioned loans. Only around $400 million of loans are share-backed loans, and after the share price fall, Adani has provided additional equities to maintain the loan-to-asset ratio, which is typically 1:2," said the second person, adding that the entire $9 billion credit limit (including working capital loans) is backed by assets. Around $7.5 billion has been disbursed out of over $9 billion credit line sanctioned by various domestic banks, said the second person.

“If the group intends to avail loans from the unutilized limits, it won’t be required to provide additional collateral at this juncture. The entire sanctioned portion is backed by cash-generating assets," the second person said. “For instance, SBI has sanctioned a credit limit of 55,000 crore. Of this, only 27,000 crore has been availed."

This person said around 85% of working capital loans availed from banks by Adani Group firms are fund-based, and only around 15% are non-fund-based.

Last week, executives from the group approached lenders with their 413-page rebuttal to the report by short-seller Hindenburg Research that alleged stock manipulation and accounting fraud against it. The conglomerate has denied all allegations and has accused Hindenburg of engaging in “calculated securities fraud".

“We will allow Adani to draw existing credit lines because all sanctions are against specific projects. They are also sitting on surplus cash," said the second person. However, he said, the Hindenburg fiasco and its impact on the group’s fundraising capabilities could put a brake on its breakneck expansion.

A third banker said exposure of Indian banks is not under risk, and therefore, they would disburse sanctioned limits if and when the group reaches out. “That said, banks would ensure projects they are funding have achieved financial closure," the banker said. Financial closure is associated with borrowers meeting conditions set by lenders before they disburse the first round of credit.

Others believe bankers would also not be able to stop sanctioned limits unless there is a default, typically one of the conditions set in loan contracts where credit is disbursed in tranches.

After sanctioning a loan to a corporate borrower, banks charge a commitment fee of about 0.5-1.5% of the loan, its payment depending on whether it is a term loan or a working capital. This ensures the loan is not just sanctioned, but the bank is also committed to disbursing it when the borrower seeks it, although the amount varies across lenders. Banks charge this fee because they have to maintain adequate liquidity for the borrower to withdraw.

“Once the conditions precedent (pre-disbursement checks) are met by the borrower in the first tranche, the remaining unutilized limits are more or less disbursed unless there is a default," said a banking sector analyst.

According to a fourth banker, there is a possibility that the risk quotient for Indian companies could increase following the Hindenburg report.

“It would be tougher for Indian companies to raise funds overseas due to the Adani episode. This will be a significant dampener for everyone. So, I am worried about the negative repercussion on India Inc.," the banker said.

So far, several banks have disclosed their exposure to the Adani Group after concerns were expressed about its debt. While SBI said it is at 27,000 crore, Punjab National Bank said it is 7,000 crore, Bank of Baroda at 5,380 crore, and Axis Bank at 7,164 crore (as per its disclosure of it being at 0.94% of its latest net advances).

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ABOUT THE AUTHOR
Shayan Ghosh
Shayan Ghosh is a national editor at Mint reporting on traditional banks and shadow banks. He has over 12 years of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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Published: 06 Feb 2023, 12:14 AM IST
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