Adani showcases cash reserves to investors, says can grow without external debt

New Delhi: Declaring its H1 results on Monday, crisis-ridden Adani Group sought to assuage investors by showcasing its cash reserves and profits along with a note. “Adani portfolio companies have sufficient liquidity to cover all debt servicing requirements for at least 12 months. As of September 30, 2024, Adani portfolio companies had cash of Rs 53,024 crore, which was close to 21 per cent of its total gross debt outstanding,” said the note while trying to assure investors of normalcy despite an indictment order against its founder and Chairman Gautam Adani.

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The conglomerate, in a presentation, told investors that it has cash balances of Rs 55,024 crore, which is more than long-term debt repayments for the next 28 months. The group’s Chairman and two other executives have been indicted by a US court in a USD 265-million scheme to bribe Indian officials to secure power sale contracts for its manufacturing-linked solar power projects.

Adani Group’s cashflow situation

In the past, the group had announced plans to invest more than Rs 8 lakh crore (USD 100 billion) across portfolio companies in the next 10 years. Fund Flows from Operations (FFO) or cash profits stood at Rs 58,908 crore for the past 12 months and grew at over 30 percent during the last five years. On this basis, even after assuming no growth, the group will be able to invest Rs 5.9 lakh crore only from its internal cash accruals over the next 10 years, leaving very little dependency on external debt.

Further, at the portfolio level, there is a very low debt gearing of 2.46x -- which means it has massive headroom for debt, according to the presentation. Other highlights from the presentation included EBITDA (earnings before interest tax and depreciation) for the past 12 months, which it said was highly stable and, hence, predictable due to its infrastructure projects, grew by 17 percent to Rs 83,440 crore.

Gross assets or investments increased by Rs 75,227 crore against a total debt increase of only Rs 16,882 crore. The asset base has now increased to Rs 5.5 lakh crore. Average cost of borrowing is at 8.2 per cent, the lowest in five years, due to upgrades in ratings across group companies, it said.

The Adani Group’s long-term debt from domestic banks is Rs 94,400 crore. This stands against a cash balance of Rs 53,024 crore, most of which is parked with Indian banks. Borrowings from global banks are 27 per cent of total debt.

Adani said 62 percent of its total revenue and 87 percent of earnings before interest, tax, depreciation and amortization (EBITDA) were derived from its core infrastructure business.

Net debt to EBITDA at 2.46x - against guidance of 3.5x-4.5x. Also, its gross assets to net debt ratio improved to 2.7 times during the first half of the current fiscal year compared to 2.63 times in the previous year.

Funding

The Adani group presentation to investors came as doubts were being expressed over its ability to raise funds overseas following the US indictment against its founder chairman Gautam Adani and seven others including his nephew Sagar, for being part of an alleged USD 265 million bribery scheme. Some global banks and financial institutions were reportedly considering temporarily halting fresh credit to the group.

Last week, S&P Ratings had said it will watch for any signs of weaker funding access or concerns from existing lenders -- which could be demonstrated by the lowering of funding limits, non-renewal of facilities, or significantly higher credit spreads.

After the news of the indictment broke, equity and bond prices across Adani group companies have fallen sharply. The group cancelled a USD 600 million concluded bond sale. This indictment is independent of, but follows, a short-seller report last year, which hit equity and bond prices across the group although these had subsequently recovered.

The group, which had denied all allegations levelled by US short-seller Hindenburg Research, has also dismissed the allegations in the US indictment as baseless and has said it would seek all possible legal recourse. Its CFO Jugeshinder Robbie Singh on Saturday stated that the group would respond to the US allegations after a detailed review of the legal filing and after advice from its counsel.

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