The Adani Group is formulating a strategy to generate $350 million through dollar bonds in the upcoming year, primarily aimed at refinancing a $500 million RG1 (restricted group 1) bond set to mature in December 2024.
The RG1 is a restricted group with a solar generation capacity of 930 MW, comprising three subsidiaries of Adani Green – Adani Green Energy (UP) Limited, Parampujya Solar Energy Private Limited (PSEPL), and Prayatna Developer Private Limited.
Additionally, the group is considering the possibility of calling the bonds in July 2024, six months ahead of their maturity date.
Jusgeshinder Singh, the CFO of Adani Group, said at the Trust Group’s India Debt Capital Market Summit 2023 that calling the December bond on July 7 would incur no prepayment penalty and would align with RBI guidelines.
“We can call the December bond on July 7 without paying prepayment penalty and complying with RBI guidelines,” said Jusgeshinder Singh, CFO of Adani Group at Trust Group’s India Debt Capital Market Summit 2023. “Theoretically, we would like to go ahead and call the paper around that time.”
The group is prepared for both private placement and bond issuances to manage the refinancing of the paper maturing in December 2024.
Addressing the funding requirements for a $750 million bond due in September 2024, Singh said the goal is to complete this by December 10-11, assuring that the necessary funds for this particular bond have already been arranged through internal accruals.
For the September 2024 bond, Adani has established an escrow account as part of the bond redemption reserve account, as stipulated in the original bond document; the plan is to issue the compliance certificate by December 10-11.
Singh also shared insights into the group’s vision of investing Rs 7 lakh crore in infrastructure over the next decade, expressing confidence in Adani’s ability to handle upcoming financial debt obligations and debt-raising activities.
Singh mentioned a high demand for USD bonds within the Adani Group and readiness for Reg D and Reg S 144 issuances.
The launch of the issue will depend on specific demand, with a Reg D bond having a tenure of 18 years plus.
Adani Group has successfully raised $9 billion in debt from global markets through the issuance of 17 bonds.
Among these bonds, the $750-million, 4.375% bond of Adani Green Energy maturing in September 2024 has experienced the most volatility. The management implemented a financial plan by July to reassure investors, ensuring that funds would be placed in escrow one year ahead of maturity.
Regarding non-core businesses, Singh emphasised the group’s aspiration to be among the top 3 in any sector it operates in.
On the subject of Adani Wilmar, he mentioned that the group is currently assessing whether to retain or divest the Adani Wilmar stake, with a decision expected within the next three months.
The practice of raising funds to prepay bonds stresses a concern about the financial strategy employed by the Adani Group and can be perceived as less than ideal –
1. Financial Prudence –
Critics argue that prepaying bonds through external fundraising might not be financially prudent. If a company has surplus cash generated from its operations, it is generally considered more financially responsible to use that surplus to retire debt since raising additional funds to pay off existing debt could be seen as an unnecessary financial manoeuvre.
2. Interest Costs –
Taking a loan to pay another loan incurs additional interest costs – if the Adani Group secures funds through new bonds or loans to retire existing debt, it implies that they would be paying interest on both the new and existing debt simultaneously, perhaps an extra layer of financial burden.
3. Debt Repayment Source –
Further, if the Adani Group indeed has surplus cash generated within its business operations, it should be used directly for debt repayment. Raising funds externally could indicate that the company might not have sufficient internal resources to manage its debt obligations, potentially raising concerns about its financial health.
4. Market Perception –
Investors and analysts often evaluate a company’s financial decisions to gauge its stability and management efficiency. Raising funds specifically to prepay bonds leads to questions about the company’s ability to generate enough cash flow from its core operations.
5. Opportunity Cost –
Using external funds for debt prepayment overlooks potential alternative uses for that capital- the funds raised could potentially be employed more strategically, such as for business expansion, capital investment, or other value-generating initiatives, rather than solely for retiring existing debt.
Which Hindenburg Report’s Prediction Came True ?
Adani Total Gas Ltd. was one of the first of Adani Group Companies to realise the ominous prediction made by Hindenburg Research in October 2023, succumbing to an 85% plummet in its shares since the release of the Hindenburg report on January 24.
This marks the first instance among the seven listed companies within the Adani Group that a stock has tumbled to the forecasted level.
The shares of Adani Total Gas, the conglomerate’s city-gas distributor, experienced a further descent of more than 3%, concluding at Rs 572 on the NSE in October this year.
This decline extended from their January 24 closing of Rs 3,891.75, resulting in an overall depreciation of 85.3%. The Hindenburg report had indicated that, even when disregarding the findings of its investigation, the financials of all seven key listed companies of the Adani Group were overvalued by 85% or more.
Adani Total Gas emerged as the most severely affected among the Adani group companies in the aftermath of the Hindenburg report earlier this year. The recent setback for the company includes the Delhi state government’s policy mandating the conversion of all commercial vehicles to electric vehicles by 2030.
Hindenburg Research had leveled serious allegations against the Adani Group, claiming to have uncovered evidence of accounting fraud, stock manipulation, and money laundering spanning decades within the conglomerate.
The report stated that Gautam Adani accumulated a net worth of around $120 billion, with an astounding increase of over $100 billion in the past three years primarily through the appreciation of stock prices in the group’s seven key listed companies, which witnessed an average spike of 819% during that period.
Regarding the anticipated value loss for Adani Group’s shares, the Hindenburg report asserted, “The 7 key Adani listed companies have seen their stock prices mysteriously surge over the past 3 years, with most increasing multifold, ranking them individually among the largest companies in India.
As per the report, the 7 listed companies of the Adani Group are 85%+ overvalued, even if you ignore Hindenburg’s investigation and take the companies’ financials at face value.”
Highlighting the gravity of the situation, a former senior Reserve Bank of India (RBI) official, cited in the Hindenburg report, commented, “Any Group With Such A Meteoric Ride Based On Borrowings, Acquisitions, And An Elevated Stock Price Deserves Scrutiny.”
The Last Bit, Between financial responsibility and strategic decision-making, the Adani Group’s approach to raising funds for bond prepayment beckons a closer examination.