Rating agency raises concern over Adani Group’s debt-funded expansion drive

CreditSights, a subsidiary of Fitch Ratings, has said it remains ‘cautiously watchful’ of the debt-funded expansion of Adani Group, particularly that of the listed entities. Over the past few years, the Adani Group has pursued an aggressive expansion plan that has pressurised its credit metrics and cash flows, the rating agency said in its report titled, ‘Adani Group: Deeply Overleveraged’.

The six listed Adani Group firms had a gross debt of ₹2.31-lakh crore as of March-end. Net debt after accounting for cash in hand was ₹1.73-lakh crore.

‘Paper wealth’

Gautam Adani recently overtook Bill Gates to become the fourth richest person in the world. He had also overtaken Reliance Industries Chairman Mukesh Ambani. The combined market cap of Adani Group was ₹19.44-lakh crore against Ambani’s combined wealth of ₹17.89-lakh crore on Monday.

But, according to the rating agency, this is paper wealth, and largely tied to the value of his holdings in the Adani Group stocks, which have risen significantly in recent years. “The Adani Group is increasingly venturing into new and unrelated businesses, which are highly capital intensive and raises concerns regarding spreading execution oversight too thin,” the agency warned.

This comes at a time when the ports-to-power conglomerate has been investing aggressively across both existing and new businesses, predominantly funded with debt, resulting in elevated leverage and solvency ratios.

Distressed situation

“This has understandably caused concerns about the group as a whole and the implications it could have on the group companies that are bond issuers. In the worst-case scenario, overly ambitious debt-funded growth plans could eventually spiral into a massive debt trap and possibly culminate into a distressed situation or default of one or more group companies,” said CreditSights.

Over the past few years, the Adani group has aggressively expanded across virtually all its businesses. This includes both rapidly growing operations of its existing businesses (for example, Adani Green is aiming at growing its operational renewable capacity almost five-fold by FY25), and entering into new sectors, in which it has no prior experience in (including copper refining, petrochemicals, data centres and most recently, telecom and alumina/aluminium production among others).

The Adani group is also active in expanding through the inorganic route. The conglomerate acquired Holcim’s controlling stake in Ambuja Cement and ACC for $10.5 billion, thereby becoming the country’s second largest cementmaker, virtually overnight.

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