Global Investment bank and financial services firm, Credit Suisse AG released an analysis report this week on the amount of debt raked up by the renowned Adani Group to conduct strategic acquisitions and investments in the country.
Owned by the richest man in India, Gautam Adani, Adani Group is one of the largest multinational conglomerates in the Asian country with a presence in nearly all sectors including ports, renewable energy, agriculture, energy, and power.
According to an analysis by Credit Suisse, the latest acquisition of Indian businesses of Holcim Limited by Adani Group will add nearly 40000 crore rupees to the overall debt of the conglomerate. The acquisition deal which is majorly engineered using debt will take the overall debt of Adani Group to approximately 2.6 trillion rupees.
Over the past 5 years, the entire debt of Adani Group increased from 1 trillion to 2.2 trillion rupees. The majority of these debts were used for acquisitions of assets and businesses in areas such as large-scale infrastructure, airports, ports and green energy businesses. The decision to Venture more into the business of energy and electricity transmission also added up the debt of the conglomerate.
Even though the group has witnessed an immediate jump in the debt levels of the business entity, the diversification of debt components to various instruments such as bonds, loans from financial institutions and lenders are positive signs. It is also important t note that large amounts of these debts are having lengthy maturity periods which allows Adani Group to increase cash flow within a set timeframe.
The increasing cash flow and revenue from operations are also a green signal for the group. Earnings before interest tax depreciation and amortization of the Adani group is nearly 5× in the current financial year. During the financial year 2016-17, this figure was 7.5×. The ability of conglomerate to cover its interest payments through revenue has increased from 0.9× in FY 16 to 2× in the current financial year.
Reports suggest that the latest addition of 500 million dollars to Adani Group by International Holdings Co-based in Abu Dhabi has eased the debt to capital ratio of the multinational conglomerate. The infusion of capital from IHC is expected to bring down the debt-to-capital ratio of the Adani group from 90% in March to nearly 60%.
Open offer for ACC and Ambuja Cements
In the last week of August, the Ahmedabad-based conglomerate through its subsidiary in Mauritius, Endeavour Trade and Investments, launched an open offer to acquire a 26% stake in Indian cement giants ACC and Ambuja Cements. Both ACC Limited and Ambuja Cements are Indian subsidiaries of international building materials giant Holcim Limited. The open offer was launched by Adani Group after it struck a share purchase agreement with Holcim to acquire a controlling stake in Holcim’s businesses in India.
Then open offer which will cost the company nearly 31000 crore rupees along with a share purchase agreement with Holcim which will cost 45000+ crore rupees is mainly financed by debt.
After the share purchase and open offer acquisition, Adani Group will have a 63.1% share in Ambuja Cements. ACC Limited which is a subsidiary of Ambuja cement will also be under the control of the Indian conglomerate.