Fitch arm says Adani Group companies overleveraged

The Adani Group’s aggressive expansion plan has pressured its credit metrics and cash flows, CreditSights said in a report released on Tuesday, adding that in the worst-case scenario, it may spiral into a debt trap and culminate in a default.

CreditSights is a data intelligence platform offering lending market data to help understand sourcing, portfolio exposure and delinquency.

According to the report, Adani Group is increasingly venturing into new and unrelated businesses, which are highly capital-intensive and raises concerns that execution oversight may spread too thin.

“We 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,” the report said. “Overall, we remain cautiously watchful of the group’s growing expansion appetite, which is largely debt-funded,” it added.

The CreditSights report comes a day after the Adani Group became India’s most valuable conglomerate.

The Adani Group companies’ collective market value has totalled ₹19.44 trillion, surpassing Mukesh Ambani Group companies’ market valuation of ₹17.82 trillion.

Adani Group, which runs businesses from seaports to airports and energy, has been on a rapid diversification spree, expanding to include airports, data centres, healthcare services, cement and green energy.

“Potential strong competition between the Adani Group and Reliance Industries to achieve market dominance could lead to imprudent financial decisions being made,” the report said.

However, CreditSights added that it draws comfort from the group’s strong relationships with banks and the Narendra Modi administration.

Adani Enterprises has raised ₹12,770 crore from State Bank of India to fund its greenfield Navi Mumbai international project. SBI has also given another loan of ₹6,000 crore to fund phase 1 of its greenfield copper refinery project in Gujarat. The company also raised a $250 million loan from Standard Chartered Bank and Barclays Bank to fund capex and development at six airports managed by Adani Airport Holdings (AAHL).

The report highlighted that despite elevated leverage levels and poor interest cover, all Adani Group companies have large expansion plans, having adopted aggressive growth targets, which is not a financially prudent strategy.

Adani Green Energy is one of the fastest growing Adani Group entities as a front-runner to achieve the group’s goal of investing $20 billion in clean energy businesses over the next 10 years.

That said, the report noted that the Adani family has a majority shareholding in five out of its six listed entities, and hence, the family’s entire fortune and reputation is tied to the Adani Group companies.

“Having such major ‘skin in the game’ could imply that the family would pull all stops to avoid default in any of the entities since any material liquidity/solvency issue in one company would likely have a contagion effect on the valuation of the remaining companies, too,” the report added.

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