BackWhat Jefferies says on Indian banks exposure to Adani Group
We watch for progress, but see low risks for banks, said Jefferies
PremiumIndian banks' exposure to the Adani Group is within manageable limits, said global brokerage Jefferies, as the group fend off an attack from well-known US short-seller Hindenburg Research said it held short positions in the Indian conglomerate, accusing it of improper use of offshore tax havens and flagging concerns about high debt that sent the Group stocks to crash for the second straight session.
“Following recent concerns, Adani Group has shared details of debit & leverage levels. Consolidated debt is at ₹1.6 tn (ex shareholder sub-debt) & Debt/Ebitda is down from 4.3x in FY16 to 3.2x in FY22. Acquisition of cement business may add c. ₹600 bn to debt, but also lift cashflow. Diversification of borrowing-mix, has cut share of Indian banks to 33% of debt & 0.5% of sector loans; rest with bonds/foreign banks. We watch for progress, but see low risks for banks," the note stated.
According to the brokerage, the group's debt accounts for 0.5% of total loans across the Indian banking sector. For public sector banks (PSU), the debt is at 0.7% of total loans and for private banks, it is at 0.3%.
"Adani group has a consolidated gross debt of ₹1.9 tn and net debt of ₹1.6 tn, which is spread across group companies. The top-3 companies by net debt levels are Adani Green Energy (AGEL), Adani Power (APL) and Adani Ports and SEZ (APSEZ) with ₹300-400 bn in net debt each. We understand with the acquisition of cement business of ₹600 bn (including preferential allotment of Rs200bn), but this company also generates reasonable cashflow. Over FY16-22, we estimate that net debt levels have risen from ₹0.7 tn to ₹1.6 tn reflecting capex in group companies," the note highlighted.
Over the past 5-6 years, group has diversified its borrowing mix and reduced the share of Indian banks (PSU and private) in their borrowings from 86% in FY16 to 33% in FY22, Jefferies said.
The share of bonds as well as foreign banks in total debt have risen to 37% and 18% now. Our recent conversation with industry participants also indicated that cash-flows and repayment timelines of debt have been conservatively planned. Hence, DSCR could be even better. While we watch for developments here, we don't see material risk arising to the Indian banking sector," it added.
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