Adani Promoters Prepay $1.1 Billion Loans; But If Adani Group Had Funds, Then Why Did It Take Massive Loans?

Adani Groups Outstanding Loans with PSU Banks?

Much after the hue and cry not only in India but what was also being closely monitored by global market watchers, the fallen billionaire Gautam Adani and his family resorted to some safeguard measures in order to restore their fall from grace – both reputation and wealth.

The Adani group and family announced the prepayment of $1.11 billion worth of loans backed by shares of three of its listed firms even as the empire’s units continued to take a heavy beating and losses on the stock market nearly two weeks after being charged with engaging in serious fraud.

The Adani Group, in a statement, stated its promoters have paid off the loans, which were due in September 2024, primarily to address the “recent market volatility.”

The paid-off loans in question had been borrowed against shares of three of Adani’s companies – Adani Ports, Adani Green Energy and Adani Transmission.

However, despite the announcement, it did not do much for the company and the conglomerate’s flagship entity, Adani Enterprises, ended the day in red at 0.89%. At the same time, shares of five of the group’s six other key listed firms hit their lower circuit once more.

Adani’s Loans 

What comes to mind after this above announcement was made is this – if Adani’s had the funds, then why did they borrow from the banks in the first place?

CLSA came out with a report on Adani’s borrowings, and this is what it revealed – 

1) Over the past three to four years – the total debt of the top Adani Group companies – Adani Enterprises, Adani Ports, Adani Power, Adani Green and Adani Transmission has increased from Rs 1 trillion to Rs 2 trillion; however, bank funding has not materially increased in the past few years. 

2) According to the report, the bank’s funding is less than 40% of its total debt portfolio. In contrast, bonds, financial institutions and foreign banks form a more significant part of the group debt

3)It further noted that bank debt (term loans, working capital, and other facilities) comprises just 38 per cent of the total debt. 

At the same time, bonds/commercial paper constitute 37 per cent and 11 per cent is borrowing from financial institutions, with the remaining 12-13 per cent coming from inter-group lending. 

Banks Fundings

On a total level, the report estimated that bank debt is Rs 700-800 billion of the Rs 2 trillion debt in FY22, and bank debt has increased by more than 25%.

The share of PSU banks in its funding mix has dropped from 55% in FY16 to 26% now FY22, while the share of private banks has fallen from 31% to 8%. 

In the present majority of the group’s funding now comes from bonds at 37 % (funding ports and the transmission business) and from foreign banks (18% of the debt),” as per the report.

Now if this is the case, then comes this set of questions?

1) Which banks are being paid back?

2)Isn’t it important that public sector banks be given priority and paid back first?

The crisis surrounding the company has triggered concerns about the exposure of India’s public sector financial institutions, including the Life Insurance Corporation and the State Bank of India, to the Adani Group.

The percentage by which shares of Adani Group’s flagship firm Adani Enterprises, are overvalued – is 38.6%, and this was the percentage given even before the Hindenburg explosive report, according to an analysis published by the Professor of finance at New York University’s Stern Business School, Aswath Damodaran.

Parliament Ruckus On Adani 

While no formal statement has come from either the PM or the FM on the Adani Group’s debacle, the issue has nevertheless gained much momentum in the parliament. 

Current Valuation

According to estimates, Gautam Adani’s current net worth stands at $60 billion—making him the eighteenth richest person in the world. Since Hindenburg’s allegations were made public nearly two weeks ago, Adani has seen his fortune drop by more than half from $126.4 billion.

Conclusion: Adani group may take adequate measures to save itself from the current dismal beating and fall it has witnessed in India and globally. Still, the public sector banks’ exposure to the group (debt) clearance should be the first priority of Adani group if it’s paying its debt back!