InvestorQ : What has been Adani’s response to the allegations of overleverage made by Fitch and S&P?
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What has been Adani’s response to the allegations of overleverage made by Fitch and S&P?

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Niti Shenoi answered.
3 weeks ago
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A little over a week ago, CreditSights the research arm of Fitch had specifically red-flagged high levels of leverage of the Adani group as a major risk factor. Just a day after that report, even S&P had joined the caution chorus. CreditSights was specifically worried about the recent acquisitions of the Adani group being funded by debt. It was referring to the $10.5 billion that the Adani group was spending in taking controlling stake in ACC and Ambuja which was being largely fuelled by debt, with limited cash flow visibility.

Now, the Adani group has responded to the specific allegations of leverage made by CreditSights in a 15-page response. In a point-wise response to the red-flags raised by CreditSights, the Adani group has underlined that it had been consistently de-leveraging. For instance, the (Net debt to EBITDA) ratio had fallen sharply from 7.6X to 3.2X in the last 9 years, which the report had ignored. Adani group emphasized that its projects were of national importance and high gestation in nature, so debt funding was inevitable.

However, despite that, the allegations of overleverage were largely nor borne out by statistics, according to Adani. The Adani had gross debt of Rs1.88 trillion as of March 2022 and a net debt (net of cash) of around Rs1.61 trillion. On the EBITDA to Gross Interest ratio of Adani Enterprises, the group pointed out that the figure was actually 1.98 and not 1.60 as put out in the CreditSights report. Adani also added that its bank funding levels had sharply fallen in the last few years and that was borne out by the comparative figures.

Consider these data points. In FY16, the loans from PSU banks accounted for 55% of the group debt, but that ratio had fallen to 21% by the fiscal year FY22. Even in the case of private bank loans, the share in the total debt of Adani group had fallen sharply from 31% to 11%. These had been replaced by long term bonds, but the short term risk was surely out of the way. Adani has concluded saying that even in a worst case scenario, the group was adequately funded and promoter pledges were hardly a concern today.

There were 2 more issues raised in the report about EBITDA growth and equity capital. Adani pointed out that the net debt to EBITDA ratio coming down from 7.6x to 3.2x, but more importantly, in the last 9 years, the EBITDA has grown at 22% CAGR while the debt had grown by just 11% CAGR. On equity infusion, Adani clarified that it has raised $16 billion equity for 6 group companies in 3 years. Equity has also come from global names like Total Energies, IHC, Abu Dhabi, Qatar Investment Authority and Warburg Pincus.

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