InvestorQ : Does the high levels of debt make the Adani group a tough choice to invest?
Niti Shenoi made post

Does the high levels of debt make the Adani group a tough choice to invest?

ishika Banerjee answered.
2 months ago

Adani group appears to have learnt its lessons from negative publicity quite fast. After there was a furore over a leverage warning issued by Fitch and S&P Global, the group came under a lot of criticism for bankrolling its inorganic expansion by taking on debt. Among the various Adani group stocks, the problem of leverage was most acute in Adani green where debt equity ratio was almost 20 times. Much of the debt had been assumed in the last one year after the ACC and Ambuja deals were put through by the Adani group.

However, there is some good news that can silence the sceptics for now. Recently, Abu Dhabi-based International Holding Company (IHC) injected $500 million into Adani Green Energy. IHC has already invested $2 billion into various Adani group companies. This infusion will bring down the debt to capital ratio of Adani Green from 95.3% to 60%. That is still a lot of debt by global standards but surely more comfortable. Nomura has pointed out that pullback of leverage would be broadly positive for the ratings of Adani companies.

This inflow came after the June quarter so it would only reflect in the September quarter. That is when the capital will reflect the infusion and the reduced leverage ratio. However, it remains to be seen how long these levels of leverage can be sustained. With the Adani group committing $70 billion of investments in green energy by 2030, debt is always going to be an issue. After all, prior to the equity infusion, the debt equity ratio of Adani Green was the second worst in the whole of Asia.