Domino effect

After canceling its share sale, Adani will have to rein in its spending

Adani group’s flagship entity had on Feb. 1 called off its $2.5 billion share sale
After canceling its share sale, Adani will have to rein in its spending
Image: Reuters (Reuters)
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Having shocked investors by abruptly canceling a major share sale a few days ago, the crisis-hit Adani group may now pull back cautiously on spending, too.

Trouble mounted today for the Indian conglomerate as Standard Chartered began refusing to accept the group’s bonds as collateral on margin loans, television channel ET Now reported. Citigroup and Credit Suisse had taken similar measures earlier.

Credit rating agency Moody’s had on Feb. 3 warned that the group’s ability to raise capital will be hit, reducing its ability to fund capital expenditure or refinance debt “over the next 1-2 years.” On the same day, S&P also cut the outlook on Adani Ports and Special Economic Zone (APSE.NS) and Adani Electricity from stable to negative.

“The negative outlook reflects the risk of a deterioration in the credit profile of Adani Ports and Adani Electricity Mumbai due to governance risks and funding challenges for the larger Adani Group,” S&P said in a statement.

On Feb. 1, group flagship Adani Enterprises called off a $2.5 billion (20,000 crore rupees) share sale despite being oversubscribed. This happened after the group’s stocks sunk following the publication of Hindenburg Research’s report accusing it of stock manipulation and fraud.

Will the Adani group cut down spending?

The Mint reported today that Adani group generates Rs 57,000-60,000 crore in earnings before interest, taxes, depreciation, and amortization (EBTIDA) annually.

“Out of the total EBTIDA amount, available to the Adani group as use for capital spending, working capital requirements, and meeting immediate repayments, which are worth around $300 million over the next six months,” Mint quoted sources as saying. Further, it said, the company might now look at 16-18 months for growth in certain businesses, instead of a 12-month target.

If the Adani firms reduce spending, some of their massive projects could be affected. For instance, group chief financial officer Jugeshinder Singh had in 2020 spoken about infusing Rs 35,780 crore into the group’s airport business over five years.

“With airports, we want to make it a consumer transport facility, as APSEZ (Adani Ports & Special Economic Zone) is a cargo transport facility. For that we have a clear strategy which Mr Adani has laid out for us,” Singh had said in November 2020.

Adani is India’s largest airport management player.

No relief in sight for the Adani group

Meanwhile, doubts are mounting over Adani Enterprises’ canceled share sale, too. On Feb. 3, Forbes reported that “three investment funds that purchased shares in Adani Enterprises’ scuttled $2.5 billion offering have ties to the Adani Group and suspected Adani proxies.”

This adds to Forbes’ earlier report, validating Hindenburg Research’s allegations, that two firms associated with the group were also underwriters to the follow-on public offering. The financial forensic analysis firm had alleged that some 38 shell companies of Adani had helped the Indian conglomerate manipulate stock prices.

Stocks of the group, which has its quarterly earnings declaration scheduled this week, continue to tumble. For instance, at the time of publishing, Adani Transmissions was down 10% from its previous close. Similarly, Adani Power, Adani Total Gas, and Adani Green were down 5% each.

The Indian government, however, has said the freefall won’t impact investors’ confidence in India and that it was only a “company-specific matter.”

“Our regulators are normally very-very stringent about governance practices and, therefore, one instance, however much talked about globally it may be, is not going to be indicative of how well financial markets are governed,” finance minister Nirmala Sitharaman said over the weekend while addressing a post-budget press meet.