Gautam Adani’s empire is ‘deeply overleveraged,’ Fitch report warns

Indian Business Express

New Delhi: Billionaire gautam adaniCreditsites, a unit of Fitch Group, said in a report that the port-to-power group is “deeply over-leveraged”, with the group investing aggressively in existing as well as new businesses, primarily with debt. is funded.

Aggressive expansion adopted by Adani GroupLed by Asia’s richest man, CreditSites said in its report on Tuesday that it has put pressure on its credit metrics and cash flow, adding that “in a worst-case scenario” it will spiral into a debt trap and possibly a default. It is possible  “We see little evidence of promoter equity capital injection into group companies, which we believe is necessary to reduce the leverage in their stretched balance sheets,” the agency said. Referring to fund infusion from what are known as “promoters”, he said. India.

A representative for the Adani Group did not immediately respond to a request for comment on the report. All seven listed Adani firms fell 2% to 7% in trading on Tuesday.

The CreditSights report comes after a few years for Adani, which is on a rapid diversification spree, expanding an empire focused on ports and coal mining to include airports, data centers and cement as well as green energy. Used to be.
The group recently pledged to plow $70 billion in renewable projects. These moves have not only boosted Adani’s stature in India but also boosted his fortunes this year with his net worth exceeding $135 billion.

He is also fast moving into areas dominated by the richest man in Asia, a man replaced in the form of compatriot Mukesh Ambani of Reliance Industries.

The report highlights several fault lines that could hinder stratospheric growth in Adani’s ambitions and the shares of their firms. However, analysts at CreditSights said they derive “comfort” from the group’s strong ties with banks as well as the administration of Prime Minister Narendra Modi.

Some other highlights from the report include:

Adani Group entering new and unrelated businesses that are highly capital intensive, raising concerns over performance oversight
A potentially strong competition between the group and Ambani’s Reliance to gain market dominance could lead to “injudicious financial decisions”.
Adani Group also faces moderate level of governance and ESG risks.
The group has a “strong track record of churning out strong and stable companies” through its flagship, Adani Enterprises, and has built up a portfolio of “stable infrastructure assets linked to the healthy functioning of the Indian economy”.
Its founders “enjoy a strong relationship” with the Modi government and have benefited from “policy tailwinds”.
CreditSights remains “cautiously cautious” about the group’s growing appetite for expansion, which is largely debt-funded.
A self-made billionaire who began his business as an agri-trading firm in the late 1980s, Adani has been a busy dealmaker this year as well. The Adani Group acquired the Haifa port in Israel for $1.2 billion in July and the Indian cement units of Swiss firm Holcim in May for $10.5 billion, in addition to nearly three dozen major and minor acquisitions. It is also expanding into media, health care and digital services.
The group owns India’s largest private sector port operator, coal miner, city gas distributor and airport operator and aims to build the world’s largest renewable electricity generator.
‘Pull all the stops’
Investors have cheered the tycoon’s ability to rapidly scale up their businesses, with massive stock rallies at Adani firms even during the pandemic, when most businesses suffered losses.
Adani Enterprises and Adani Green Energy have grown by over 1,300% since the beginning of 2020. Adani Total Gas has gained nearly 1,900% and Adani Transmission has gained over 900%, while the benchmark S&P BSE Sensex is up nearly 42% over the period.
But it’s the alarming growth that is making credit watchers, including CreditSites, uneasy. The research firm has acknowledged that Adani’s establishment of the family as the majority shareholder in most of the listed companies in its group means it will do everything possible to support them.
The family’s “entire fortune and reputation rests with the Adani Group of companies,” it said. “Having such a major ‘skin’ in the game could mean that the family would pull all halts to avoid default in an entity as the valuations of the balance in a company stem from any physical liquidity or solvency issue.” can have a contagious effect on companies too.”