InvestorQ : Can you tell me about the massive share pledge of ACC and Ambuja shares that the Adani group has done?
Anamika Sodhani made post

Can you tell me about the massive share pledge of ACC and Ambuja shares that the Adani group has done?

Angel dcosta answered.
2 weeks ago

The irony was not missed in the entire event. Just a couple of weeks after CreditSights, the research unit of Fitch, had red-flagged the debt issues with the Adani group, the Adani group has gone ahead and done the largest pledge of promoter shares worth $13 billion. The entire shares that Adani acquired from Holcim have been pledged as a security for the loans that the banks had extended to bankroll the acquisition of ACC and Ambuja Cements by the Adani group, The banks have insisted on collateral to fund the deal.

If we just rewind back to the report, CreditSights in its report had express concerns over the high level of debt at the Adani group. They had specifically red-flagged the recent spate of acquisitions done by the Adani group, most of which was done with loans from banks. In any pledge, there is always the risk of the prices of the pledged stocks falling and the impact on the stock and the promoter. Even assuming that ACC and Ambuja Cements are sound companies, even a correction of 10-15% can lead to calls for more collaterals.

It is not just that Adani group has acquired companies, but they also have aggressive plans for the future, most of which would be funded with debt. For instance, it plans to invest close to $70 billion green energy in the next few years. Adani also plans to double cement capacity from 70 million tonnes per annum (MTPA) to 140 MTPA by 2027. Then there is the big media foray with the acquisition of NDTV partially done. Its existing businesses of ports and power are also going to guzzle a lot of debt. The pledge just highlights these risks.

The good news is that the acquisitions ACC and Ambuja gives Adani Group access to about Rs11,000 crore in free cash, but that is hardly sufficient. Adani plans to invest another Rs20,000 crore in Ambuja Cements through issue of warrants and that would also exert pressure on the debt position of the company. The added risk is that both ACC and Ambuja have rallied quite sharply between 25% and 40% in the last few days since the deal was announced and that makes them all the more vulnerable to pledge volatility.