Are Debt-funding Acquisitions Putting Pressure On Gautam Adani Group's Ratings

In a webinar, S&P Global Ratings Senior Director (Infrastructure Ratings) Abhishek Dangra said, "If you look at the rated entities (of Adani group), like Adani Ports, their business fundamental is fairly solid. Port business is generating healthy cash flows. Where, probably, the risk could lie for the group is, some of the acquisitions it is doing. Some of the recent acquisitions that we are seeing are largely debt-funded and that is taking away the headroom," as reported by PTI.

Dangra believes any future acquisition that Adani Group does at the current pace may start putting pressure on its ratings. However, he added that at present, the risks can be managed if the group manages the growth ambitions or the funding.

Further, Dangra said in the report, "The domestic banking system, as well as some international capital bond market investors, do look at Adani Group entities as a group and many of them, because the group has been raising funds for growth, are looking at a certain kind of group limit or limiting their exposure to one group which can become a challenge at a time when the group continues to keep growing capacity." He pointed out that the Group is investing in various segments, some of which are unrated, such as cement, data warehousing, and airports.

Recently, Adani Group received Sebi's approval for acquiring Switzerland-based Holcim's entire stake in two of India’s leading cement companies – Ambuja Cements and ACC.

Holcim, through its subsidiaries, holds 63.19% in Ambuja Cements and 54.53% in ACC (of which 50.05% is held through Ambuja Cements). The value of Holcim's stake and open offer consideration for Ambuja Cements and ACC is around $10.5 billion, which makes this the largest ever acquisition by Adani, and India’s largest ever M&A transaction in the infrastructure and materials space.

Adani Group is likely to launch an open offer soon for acquiring a 26% stake each in ACC and Ambuja Cements. If fully subscribed, Adani will pay nearly ₹31,000 crore under the open offer.

Earlier this week, in its report, CreditSights said that the Adani Group’s aggressive expansion plan has pressured its credit metrics and cash flows. In the worst-case scenario, the Group may spiral into a debt trap and culminate in a default.

The Fitch-arm explained that 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.

As of August 25, 2022, Adani Group's listed companies' market valuation is nearly ₹19.22 lakh crore - making it the most valued conglomerate. The Group has outrun Reliance Industries whose market capitalisation is nearly ₹17.8 lakh crore as of now.

There are seven Adani listed companies. These are Adani Transmission, Adani Ports, Adani Power, Adani Green Energy, Adani Total Gas, Adani Enterprises, and Adani Wilmar.

As per BSE data, as of August 25, Adani Transmission is the most valued Adani company with a market cap of over ₹4.14 lakh crore, followed by Adani Green Energy with a cap of nearly ₹3.75 lakh crore, Adani Total Gas at ₹3.70 lakh crore, Adani Enterprises at nearly ₹3.5 lakh crore, Adani Ports at over ₹1.72 lakh crore, Adani Power at over ₹1.51 lakh crore, and Adani Wilmar with a valuation of ₹89,190.44 crore.