Ports-to-power conglomerate Gautam Adani ‘highly overrated’: CreditSights | Whuff News


Indian billionaire port-to-power conglomerate Gautam Adani is “highly overvalued,” with the group investing aggressively across existing and new businesses, mostly financed with debt, the Fitch Group unit said in a report Tuesday.

Aggressive expansion by the Adani Group, led by Asia’s richest man, has put pressure on its credit metrics and cash flow, CreditSights said in the report, adding that “in a worst-case scenario” it could fall into a debt trap and possibly default.

“We see little evidence of an injection of promoter equity capital into group companies, which we feel is necessary to reduce leverage in their stretched balance sheets,” the agency said, referring to the infusion of funds from Adani Group founders, known as “promoters”. in India.

A representative for the Adani Group did not immediately respond to a request for comment on the report. All seven listed Adani firms fell between 2% and 7% in Tuesday’s trade.

The CreditSights report comes after a big few years for Adani, which has diversified rapidly, expanding an empire centered on ports and coal mining to include airports, data centers and cement and green energy. The group recently pledged to plow $70 billion into renewable projects. The move has not only boosted Adani’s position in India, but its wealth, with its net worth soaring past $135 billion this year. He is also increasingly moving into a field dominated by the man he replaced as Asia’s richest man, fellow countryman Mukesh Ambani of Reliance Industries Ltd.

The report focuses on various fault lines that may hinder Adani’s ambitions and a stratospheric surge in its firm’s shares. CreditSights analysts, however, said they took “comfort” from the group’s strong relationship with banks and the administration of Indian Prime Minister Narendra Modi.

Some other highlights from the report, authored by CreditSights Lakshmanan R, Rohan Kapur and Jonathan Tan:

-The Adani Group is entering new and unrelated businesses, which require high capital, raising concerns over implementation oversight

-Potentially intense competition between the group and Ambani’s Reliance to achieve market dominance could lead to “imprudent financial decisions”

-The Adani Group is also exposed to moderate levels of governance and ESG risk

The group has a “strong track record of producing strong and stable companies” through its flagship, Adani Enterprises Ltd., and has built a portfolio of “stable infrastructure assets tied to the healthy functioning” of the Indian economy.

  • Its founders “enjoy a strong relationship” with the Modi government and have benefited from “policy recklessness”
  • CreditSights remains “cautiously alert” to the group’s growing desire for expansion, which is largely debt-financed

A self-made billionaire who started his business as an agricultural trading firm in the late 1980s, Adani has also been a busy deal maker this year. Adani Group acquired Israel’s Haifa port in July for $1.2 billion and Swiss firm Holcim’s Indian cement unit for $10.5 billion in May, in addition to nearly three dozen acquisitions large and small. It is also expanding into media, healthcare and digital services.

The group owns India’s largest private sector port operator, coal miner, city gas distributor and airport operator and aims to create the world’s largest renewable power generator.

‘Pull Out All the Stops’

Investors have cheered the tycoon’s ability to rapidly scale up his business, driving massive share gains in firm Adani even during the pandemic, when most businesses are suffering. Adani Enterprises and Adani Green Energy Ltd. has surged more than 1,300% since the beginning of 2020. Adani Total Gas Ltd. has increased approximately 1,900% and Adani Transmission Ltd. over 900%, while the benchmark S&P BSE Sensex surged nearly 42% over this time.

But it’s this rapid growth that makes credit watchers, including CreditSights, uneasy. The research firm acknowledges that the Adani founding family’s status as majority shareholders in many of their listed group companies means they will go out of their way to support them.

“The family’s wealth and reputation are tied to Adani Group companies,” he said. “Having such a large ‘skin in the game’ can imply that the family will do everything to avoid default in any entity, as any material liquidity or solvency issue in one company is likely to have a contagion effect on the valuation of the rest of the company as well. “

This story was published from a wire agency feed without modification to the text. Only the headline has been changed.

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