The Adani Group is entering new and unrelated businesses, which are highly capital intensive, raising concerns over execution oversight.
Chairman of the Adani group, Gautam Adaniโs ports-to-power conglomerate is โdeeply overleveraged,โ with the group investing aggressively across existing as well as new businesses, predominantly funded with debt, CreditSights, a Fitch Group unit, according to a report.
The aggressive expansion pursued by the Adani Group, led by Asiaโs richest person, has put pressure on its credit metrics and cash flow, CreditSights said in the report Tuesday, adding that โin the worst-case scenarioโ it may spiral into a debt trap and possibly a default.
โWe see little evidence of promoter equity capital injections into the group companies, which we feel is needed to reduce leverage in their stretched balance sheets,โ the agency stated, referring to fund infusions from the Adani Groupโs founders, known as โpromotersโ in India.
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A representative for the Adani Group didnโt immediately respond to a request for comment on the report. All seven listed Adani firms declined by 2% to 7% in trading today.
CreditSightsโ report comes after a big few years for Adani, whoโs been on a rapid diversification spree, expanding an empire centered on ports and coal mining to include airports, data centers, and cement as well as green energy.
The group recently pledged to plow $70 billion into renewable projects. These moves have not only boosted Adaniโs stature in India but his fortune, with his net worth surging past $135 billion this year. Heโs also increasingly moving into spheres dominated by the man he replaced as Asiaโs richest man, compatriot Mukesh Ambani of Reliance Industries Ltd.
The report highlights on the multiple fault lines that may impede Adaniโs ambitions and the stratospheric rise in the shares of his firms.
The report, however, said they draw โcomfortโ from the groupโs strong relationships with banks as well as the administration of Indian Prime Minister Narendra Modi.
Some other highlights from the report, authored by CreditSights Lakshmanan R, Rohan Kapur, and Jonathan Tan.
The Adani Group is entering new and unrelated businesses, which are highly capital intensive, raising concerns over execution oversight.
Potential strong competition between the group and Ambaniโs Reliance to achieve market dominance could lead to โimprudent financial decisions.โ
Adani Group is also exposed to moderate levels of governance and ESG risks. Adani Group is also exposed to moderate levels of governance and ESG risks.
Its founder โenjoys a strong relationshipโ with the centeral government and has benefited from โpolicy tailwinds.โ
CreditSights remain โcautiously watchfulโ of the groupโs growing appetite for expansion, which is largely debt-funded.
A self-made billionaire who started his business as an agri-trading firm in the late 1980s, Adani has also been a busy dealmaker this year. Adani Group acquired the Haifa port in Israel in July for $1.2 billion and Swiss firm Holcimโs Indian cement units for $10.5 billion in May, besides almost three dozen big and small acquisitions. Itโs also expanding into media, health care, and digital services.
The Adani group owns the countryโs largest private sector port operator, coal miner, city gas distributor, and airport operator and is aiming to create the worldโs largest renewable power generator.
Investors have cheered the tycoonโs ability to rapidly expand his businesses, spurring massive share rallies in Adani firms even during the pandemic, when most businesses suffered. Adani Enterprises and Adani Green Energy Ltd. have surged more than 1,300% since the beginning of 2020. Adani Total Gas Ltd. has rallied about 1,900% and Adani Transmission Ltd. over 900%, while the benchmark S&P BSE Sensex surged almost 42% over this period.
But itโs this breakneck growth thatโs making credit watchers, including CreditSights, uneasy. The research firm acknowledges that the Adani founding familyโs status as a majority shareholder in most of their listed group companies means they will go all out to support them.
The familyโs โentire fortune and reputation are tied to the Adani Group companies,โ it said. โHaving such major โskin in the gameโ could imply that the family would pull all stops to avoid default in any of the entities since any material liquidity or solvency issue in one company would likely have a contagion effect on the valuation of the remaining.
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