It has been found that Adani’s Mundra power plant has more debts than assets and has a total liability worth 1.8 billion USD. It has been stated by valid media sources show that the conglomerate has deployed more than 1 billion USD of debt-financing to paper. In addition, he has reassured the investors and lenders, stating that the profits would be generated soon.
But the auditor for the Adani Groups can not ensure if the math underpinning the claim is true, and neither can the accounting experts calculate the liabilities. The Mundra Power plant was built to protect the Gujarat-based conglomerate from the write-offs of the loans and the liabilities taken by the unit. It indicates how a writedown of a single asset can cause ramifications to take place in a series.
Adani Group stocks have taken a toll on the exchange after the Hindenburg research made a cascade of allegations. The short-seller attack has alleged the conglomerate of fraudulent transactions and the manipulation of share prices against it.
The group has dismissed all the allegations stating that it complies with all the requirements for disclosures and laws.
The attack caused the loss of the shares of the listed companies by 153 billion USD in the combined market value during the Hindenburg crisis, but the valuation has bounced back. Chairman Gautam Adani’s net worth has declined to 49.8 billion USD, making him drop from the richest man in Asia. The data has been collected from Bloomberg’s Billionaire Index.
The group management, including the chief financial officer Juginder Singh, talked about the situation in February. They have conducted roadshows in Singapore and Hong Kong to reassure the investors that the company’s finances are stable. The roadshows will be conducted in Dubai, London, and the US from 7 to 15 March.
The group’s chief financial officer has further reassured that the group is not looking out for refinancing debt or injecting capital.
How did Adani’s Mundra Plant end in massive liabilities?
Gautam Adani entered the power generation business almost around fifteen years ago. He has done the same in many sectors where he has overcome many circumstances.
He expanded in diverse plants and has become one of the largest suppliers. The Mundra power plant was set up near the Gujarat coast in Western India, making it the gateway for global e-commerce. The plant can power more than 5 million rural homes when operated at its full potential.
The plant was set up to operate based on the imports of coal from Indonesia, where the Adani Group has won a stake in mining operations. The plan was initiated to control the costs, but it crashed because the Indonesian government linked the export of fuels to more expensive ones overseas in US dollars.
The Adani Group tried to negotiate with the local distributors to cope with the rising crisis. But, the dispute turned out to be severe when the negotiations failed.
During that time, the Mundra power plant was operating but facing losses. The liabilities reached the mark of 1.5 billion USD five years ago. But, the appointed auditor SRBC and Company has stated that there was material uncertainty around the subsidiary and asserted that the power plant could hold certain doubts – a common sign to an asset write-down.
Adani sought help from a sub-entity, and through this entity, Adani Power lent the Mundra plant 600 million USD. The loan was produced through unsecured debentures.
The securities followed with a 10 percent interest and the loan was perpetual, meaning that there was no specific date when the Mundra plant had to repay the liabilities.
The measure has provided the Gujarat-based conglomerate with a crucial advantage. There were other alternatives. An equity investment needed to be written down if the power plant continued to lose money. A standard loan may have mandated the regular payment of loans.
But, the debentures were designed to avoid such consequences. The corporate structure was created to let go of responsibility.
In the financial statements, it has been called equity and no debt, which has improved the debt-to-equity ratio of the Mundra power plant.
The accounting experts have talked about the liabilities stating that estimating a power plant’s future value is a complex process. The revenue depends on the local government, the rise and fall of coal prices, and the valuation of currencies.