The Mundra power plant is a prime example of the concerns surrounding Gautam Adani’s business practices. The coal-powered plant has accumulated $1.8 billion in losses and has more liabilities than assets. Adani has utilised over $1 billion in creative debt financing to address this deficit and reassured investors that profits will soon follow.
However, Adani Power Ltd.’s auditor and accounting experts are unable to comprehend the calculations underlying these claims fully. This situation is symbolic of the ongoing conflict between Adani’s conglomerate and investors, who have been swayed by Hindenburg Research’s allegations that Adani is responsible for “the largest con in corporate history.”
Despite Adani’s denial of these accusations, his companies lost up to $153 billion in combined market value after Hindenburg’s report, causing Adani’s personal wealth to decline by over 50% to $49.8 billion. The Adani empire’s heavy reliance on debt and intertwined financial arrangements have further exacerbated investor concerns.
Mundra power plant debt consequences
The Mundra power plant and its debts are a prime example of the high-stakes game that Gautam Adani is playing, where the company’s losses are obscured by complex debt financing. Experts suggest that a write-off of the plant could have far-reaching consequences for the entire Adani Power conglomerate.
Some accounting professionals claim it would be wise to write off the plant to avoid future repercussions. Adani Power has not responded to detailed questions nor follow-up phone calls. When Adani entered the power generation industry 15 years ago, he became one of India’s largest suppliers, with Mundra as the flagship plant.
Mundra’s operating costs spiralled out of control, and the plant has been haemorrhaging money ever since. Mundra’s lifetime losses have exceeded $1.5 billion, and its subsidiary holding the plant has been flagged for “material uncertainty” about its ability to continue as a going concern.
A partial write-off could threaten the whole arrangement, as all of Mundra, including the land, has been pledged as security for bank loans, and the Adani family has committed a quarter of its equity in the company as additional collateral.
Adani Power, an Indian company, used a subsidiary investment entity called “Standalone” to lend over $600 million to its struggling subsidiary Mundra through unsecured debentures. These debentures had a 10% annual interest rate but only had to be paid if Adani Power requested it, and were perpetual, meaning Mundra had no set date to repay the principal.
This allowed Adani Power to avoid potential write-downs that could have resulted from regular interest payments or equity investments. These debentures counted as equity rather than debt, improving Mundra’s debt-to-equity ratio and avoiding the need for a cash reserve in case of missed payments.