Adani has made major investments in the past few months, ranging from media, cement and green energy. However, critics have said it has boosted leverage and financial complexity
Billionaire Gautam Adani's conglomerate on Friday said it will raise Rs 20,000 crore in equity to fund the group’s expansion plans. This is seen as an attempt to silence criticism about high debt ratios and limited investor base that the conglomerate has been facing from the past few months.
Adani Enterprises will raise funds through the issue of fresh equity shares, it said in a stock exchange filing. The capital raise is likely to help the group deleverage and reduce debt ratios after its spree of acquisitions in the past few months.
Currently, six of its group firms have combined net debt equivalent to $20 billion, according to a Bloomberg report.
Adani's $5 Billion Funraise
Gautam Adani has made major investments in the past few months, ranging from media, cement and green energy. However, critics have said it has boosted leverage and financial complexity.
Adani Enterprises is planning to raise Rs 20,000 crore by launching a further public offer (FPO) which will be the country’s biggest FPO. The fresh issue of equity shares might see the light of the day early next year.
With this fund-raising, Adani can improve debt ratios, broaden his investor base, improve stock liquidity.
How Adani is looking to diversify investors
Adani executives are courting global sovereign and pension funds, including Mubadala Investment Co., Abu Dhabi Investment Authority and the Canada Pension Plan Investment Board, Bloomberg reported Wednesday.
The total fundraising size could be as high as $10 billion, according to people familiar with the matter.
Adani’s group is looking to other large investment funds in the Middle East as well as in Canada to invest. The group has even discussed raising as much as $10 billion, the report said, citing people aware of the matter.
CreditSights’ warning about Adani Group
The Adani group has diversified from mines, ports and power plants into airports, data centres and defence. It recently forayed into the cement sector with a $10.5 billion acquisition of Holcim's India units and is also looking to set up an aluminium factory. Most of this expansion has been funded by debt.
Adani Group’s surge in fortune in the past few years was questioned when a rating agency pointed out that the firm was deeply overleveraged with too much debt, before correcting itself.
But despite tweaks, the report mentioned that leverage for Adani was elevated, and now the tycoon is raising $5 billion from a local share sale to address concerns.
Research firm CreditSights in September had put the spotlight on the group’s “elevated” leverage and lawmakers have sought an investigation into some of the group’s investors.
In August this year, research firm CreditSights had red-flagged Adani Group’s “elevated” leverage.
Adani's ports-to-power-to-cement conglomerate is "deeply overleveraged" with the group predominantly using debt to invest aggressively across existing as well as new businesses, CreditSights, a Fitch Group unit, said.
"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," CreditSights said.
Days later, another rating agency S&P Global said the conglomerate's debt-funded future acquisitions can start putting pressure on ratings of its group companies.
The rating agency, however, added that Adani's group, which has grown on acquisitions, has fairly solid fundamentals.
In its reply, the conglomerate cited an improved net debt to operating profit ratio and more than halving of loans from public sector banks.
The inflow of $5 billion will not just bring down leverage and improve debt-ratio, but can also bring in more investors to highlight stability.
Adani has earlier responded to this by clarifying that its debt from public sector banks has been reduced by 50 per cent.
Adani Enterprises reported a quarterly profit for September ended quarter (Q2 FY23) that more than doubled.
Adani’s Major Loans
Adani has raised $5.2 billion in loans from global banks for his bid to take over Ambuja Cement by bagging Holcim’s stake in it.
The entire loan requirement for Adani’s Navi Mumbai airport project at almost $1.5 billion has also been underwritten by State Bank of India, which means that the lender has promised to pay for it in case of a loss, according to media reports.