Adani Group’s debt concern may be overstated: Proxy advisory firm SES

A proxy advisory firm has said that Adani Group needs a third-party audit of accounts to allay fears of shareholders even though the concern over group debt may be “overstated.” The group’s companies have lost about $140 billion in market value in only five weeks.

“In addition to the response to Hindenburg, who is not a stakeholder, Adani must care for its stakeholders (investors and lenders) and address all areas of concern,” the Stakeholder Empowerment Services (SES) said in a report.

“An independent third-party confirmation of its accounts would go a long way in establishing and restoring credibility,” it added.

Also read: Adani Group to raise $400 mn against Australian assets: Report

“Each business independently resilient”

The apples-to-airport conglomerate has been rocked by a damning report by US short-seller Hindenburg Research, which alleged “brazen stock manipulation and accounting fraud” and the use of several offshore shell companies to inflate stock prices.

The group has denied the allegations, calling them “malicious,” “baseless,” and a “calculated attack on India.” But that could not prevent a sell-off in the shares of the 10 listed group companies, with cumulative loss in market value at over $140 billion. Most stocks were in green on Tuesday (February 28).

However, SES, a corporate governance research and proxy advisory firm, said in its view, “group debt concept concern may be overstated since each business (of the group) appears to be independently resilient to muster required cashflows to service debt.”

Also read: Adani Power to supply power at reduced price to Bangladesh

The group had a gross debt of Rs 2.26 lakh crore as on September 30, according to a stock exchange filing. Total cash and cash equivalents were worth Rs 31,646 crore. It faces a repayment obligation of Rs 17,166 crore between January 2023 and March 2024.

“No cause for worry”

“With the exception that reputation loss will impact all companies, though in unequal measure on a case by case basis,” SES said, listing out the financial details of each group company.

In most cases, it said they had “adequate cash flow to service debts” and “banks have comfortable asset to debt ratio.”

Only Adani Transmission has a “high” debt-equity ratio but given the fixed return promised from the business of transmitting electricity on power lines, it is not “any cause of worry”.

Adani Green, the renewable firm of the group, is “the most leveraged company” but the company “should not face any problem” in servicing debt.

Also read: Adani firm repays ₹1,500 crore to SBI Mutual Fund and Aditya Birla Sun Life

“A grey area that must be made crystal clear”

SES said unless the group companies are interconnected in terms of shareholding, as also through intercompany transactions in the form of loans/advances, revenue dependence, as also cross-holding, group concept should not be applied as far as debt is concerned.

On concerns of pledge of promoter shares, SES said the pledge by any Adani company is 25 per cent of promoter holding, giving a margin of safety of about four times.

On allegations of money laundering via obscured beneficial owners, SES said this was a job for regulators and law enforcement agencies, which the government had to decide.

“SES can only say it is a grey area and unless made crystal clear either by Adanis themselves or the government agencies, this governance overhang or negative perception will remain,” the report said.

(With agency inputs)