“Adani Group’s debt to rise to 2.6 trillion rupees”

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Adani Group’s recent acquisition of the Indian operations of cement maker Holcim is expected to add another Rs 40,000 crore to the conglomerate’s debt, taking it to around Rs 2.6 trillion, according to an analysis by Credit Suisse.

The group headed by Gautam Adani has seen its level of debt increase over the past five years, from 1 trillion rupees to 2.2 trillion rupees, fueled by the expansion of port activities, investments in energy green, acquiring transmission business and venturing into new ones (Adani Enterprises) such as airports, roads and data centers. Credit Suisse analysts noted that while gross debt levels may have increased, the group has managed to diversify its debt into bonds and financial institution (FI) lenders with longer maturities. .

“Compared to around 86% of debt maturing within five years at the end of FY 2016 (debt levels of 1 trillion rupees), only 26% of debt is now maturing in less five years,” they said.

In terms of currencies, approximately 30% of overall debt is denominated in foreign currencies. Moreover, as the absolute levels of Indian bank lending to Adani have remained stable over the past five years, their share of the group’s total debt has declined significantly to around 18%.

Analysts pointed out that while debt levels may have increased, the group’s cash flow has also increased steadily, with more assets entering production and becoming operational. As a result, Net Debt/Ebitda at group level increased to around 5x in FY22 from just under 7.5x in FY16. Interest coverage for the group also increased to more than twice now from 0.9 times in FY16.

Overall, most group companies saw their debt levels increase in FY22 as they continued to invest. However, excluding Adani Transmission, interest coverage remained stable for these entities whose operations improved. Adani Green has seen a good improvement in the operationalization of assets and therefore the large increase in debt has not impacted the interest service capacity of the company.

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Recently, an analyst at Nomura Holdings’ credit office in Hong Kong observed that with the injection of $500 million into Adani Green Energy by Abu Dhabi-based International Holding Co (IHC), the leverage ratio of the business would fall. The capital injection will help stabilize the company’s debt ratio in the low 60% range, down from 95.3% at the end of March. IHC’s support “will be reflected when the company releases details of its second quarter balance sheet,” the analyst said, noting that the cash injection reflects Adani Green’s ability to raise funds.

IHC has invested approximately $2 billion in three companies owned by Gautam Adani. The Adani conglomerate has pledged to invest a total of $70 billion in its green energy value chain by 2030 to become the largest producer of renewable energy.

While the analyst said Adani Group’s aggressive expansion is a “negative overhang for credit investors, as much of the mergers and acquisitions of late have been debt-financed,” he noted that the conglomerate has demonstrates prowess in locking in outside investors to bolster capital. EF

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