Is Adani back in the game?

The year 2023 has been a roller coaster ride for Gautam Adani, once hailed as the world's third-richest person, he was touted as a con man. His company’s stocks took a hit after a damning report by the US short-seller Hindenburg. 

Although the stocks managed to recover from their rock-bottom lows in January, the Adani Group faced enduring repercussions. The damning report compelled the group to put the brakes on certain investments, reduce capital expenditure, and, most importantly, seek alternative financing avenues for their projects.

Repercussions and Capital Injection: 

A few days ago, the group raised a substantial USD 1.38 billion (₹11,330 crore) by selling stakes in three portfolio companies: Adani Enterprises Ltd, Adani Green Energy Ltd, and Adani Transmission Ltd. This injection of capital was much required, because in Feb, the company had to call off its $2.4 billion FP0.

Prior to the Hindenburg incident, the Adani Group enjoyed unrestricted access to debt and equity markets, accumulating a whopping total debt of INR 2.2 trillion by March 2023. Additionally, the Adani name alone allowed them to raise funds at exorbitant valuations. But the tides have changed.

Now the company is resorting to stake sales to raise funds, as it debt position was questioned in the Hindenburg incident.

This isn't the first time the Adani Group resorted to stake sales. Back in March, a boutique investment firm named GQG made an initial investment of nearly $2 billion by purchasing shares in four of Adani's companies from a family trust. The proceeds from that sale were used to release a substantial portion of the promoter's pledges and repay bonds ahead of schedule.

Once accustomed to unlimited access to debt and equity markets, the Adani Group had accumulated a massive debt of INR 2.2 trillion by March 2023. However, the situation had changed, leading Adani to consider placing equity with private equity investors as a means of financing.

Scaling Back and Setbacks:

The group isn’t just resorting to private equity, it has also scaled back certain projects following the failed FPO. For instance, the ambitious petrochemical project worth Rs 34,900 crore at Mundra in Gujarat had to be suspended, posing challenges to Adani's vision. 

Additionally, Adani Power had to abandon the acquisition of DB Power due to missed deadlines, and plans to acquire a stake in PTC India Ltd had to be shelved.

Debt Servicing Concerns:

With a gross debt of Rs 2,30,000 crore in 2022-23, concerns arose regarding the Adani Group's ability to service its debt. Although the group's profits could cover interest payments, analysts raised questions about repaying the principal amount. 

Can the group successfully balance its massive capital expenditure over the next four years while meeting its debt service obligations?

Concerns linger, especially considering promoters sold equity to avoid a potential recall of pledged shares. The Adani Group's financing approach can be described as precarious at best, but it may very well be the price they have to pay to pursue their ambitious dreams.

Conclusion:

The Adani Group has faced significant challenges in 2023, with Gautam Adani's reputation taking a hit and the group reevaluating its investments and financing strategies. While they have secured capital injections and made efforts to improve their PAT, concerns remain about their ability to meet debt service obligations. As Adani Group navigates these turbulent waters, time will tell if they can regain stability and continue their ambitious journey.