Indian banks have an exposure of ₹81,200 crore to Adani group, whose group debt is ₹2 lakh crore (about $24 billion), states a report by foreign brokerage house CLSA. Though the report has downplayed the banks’ exposure by mentioning that it is 0.55% of system loans, their share is the biggest at 40% of total group borrowing as of FY22. The report states that while debt levels have doubled from ₹1 lakh crore to ₹2 lakh crore in the past three years, bank debt has only increased by more than 25%. Incrementally, banks have only lent ₹15,000 crore, or 15% of the ₹1 lakh crore, the group companies borrowed over the past three years, writes analyst Adarsh Parasrampuria.
But the report comes with a caveat that though most of the recent acquisitions of the group have been financed by foreign entities, “We are not aware of non-funded exposures that PSU banks might have extended.” Of the overall group debt, private banks’ exposure is below 10% and most banks (including ICICI Bank and Axis Bank) have indicated that they have largely financed assets with strong cash flows, such as airports and ports, states Parasrampuria.
However, state-owned banks do have material exposure (30% of group debt) though it has not increased over the past three years. While private banks' exposure is 0.3% of FY24 loans and 1.5% of FY24 net worth, for PSU banks, the exposure is 0.7% of FY24 loans and 6% of FY24 net worth. Most of the incremental funding to the group for new businesses and acquisitions has come via overseas sources. Of the total debt, rupee bonds comprise 8%, USD/FX bonds make up for a chunk at 29%, and 12% borrowing from financial institutions, while related party and inter-corporate borrowings constitute 8%.
However, the report does not state which are financial institutions. The report states the group has “indicated” that the share of PSU banks in its funding mix has dropped from 55% in FY16 to 26% now, while the share of private banks has plunged from 31% to 8%. A greater part of the group’s funding now comes from bonds at 37% (funding ports and the transmission business) and foreign banks (18% of the debt).
For private banks, the CLSA analyst mentions that they have potentially reduced their exposure on aggregate and the residual debt to the group is largely in very strong cash flow businesses, such as power and airports. “We estimate the absolute exposure at 1.4% of private banks’ FY24 net-worth – any weakness due to concerns over the group’s debt would provide an opportunity to buy, in our opinion,'' states Parasrampuria.
The CLSA report comes on the back of an in-depth report by the US-based short-seller Hindenburg Research that triggered a massive rout in listed Adani stocks, wiping out a cumulative ₹87,500 crore in market cap. Hindenburg said it had taken a short position on Adani Group companies through the company’s US-traded bonds and non-Indian-traded derivative instruments.
Though the company said it is considering legal options against the firm, Hindenburg put a statement that it would more than welcome any legal suits coming its way and that if the company was serious about its intent then the group should file a suit in the US. “If Adani is serious, it should also file a suit in the US where we operate. We have a long list of documents we would demand in a legal discovery process,” said the firm.