The indictment of Adani Group and its founder by the U.S. Department of Justice and the Securities and Exchange Commission could make it tough for Adani Green Energy Ltd (AGEL) to sustain its debt-dependent growth model.

With allegations of defrauding American investors and bribing officials to secure lucrative solar energy contracts, the fallout has been swift and severe, leading the Adani Group to cancel a $600 million bond offering amid a sharp decline in Adani-linked US dollar bonds during Asian trading. In early trades, according to LSEG data, Adani Port and Special Economic Zone debt maturing in August 2027 fell over 5 cents on the dollar, Adani Electricity Mumbai debt maturing in February 2030 fell around 8 cents and dollar bonds issued by Adani Transmission too fell over 5 cents to trade just above 80 cents.

As per India Ratings and Research (Ind-Ra), of the total debt of ₹72,260 crore as on March 2024, ₹4,510 crore was from related parties with no fixed maturities, ₹4,950 crore was in the form of working capital limits, ₹1,800 crore in form of lease liabilities and ₹7,400 crore was in the form of compulsory convertible debentures from investors in the AGEL group. Hence, the total project specific debt stood at ₹53,600 crore as of March 2024. With repayment obligations totalling ₹3,248 crore and ₹2,733 crore for FY25 and FY26, respectively, and the need to fund its growing project portfolio, AGEL could have face an increasingly complex financial landscape.

"The company has been incrementally increasing the debt through foreign currency loans in the form of construction facility," the rating agency had mentioned in its rating update in May 2024. Forex movement at the time of switching from one type of debt to another is mitigated through retaining forex gains in the project account. Hence, the risk is only to the extent of hedging cost (FY24: ₹700 crore) at the rollover of hedges, the rating agency had mentioned.

The largest renewable energy developer in India, AGEL has been a key driver of the country's clean energy transition, boasting a renewable energy portfolio of 22.3 GW, with 10.9 GW operational and the rest under construction. The company has built its expansion strategy on a debt-heavy financing approach, with 80-85% of its capital expenditures funded through debt. As of March 2024, AGEL relied on $3.4 billion in revolving construction facilities to support ongoing projects, but the indictment now threatens its ability to secure fresh debt or refinance existing obligations at competitive terms. This could significantly disrupt AGEL's plans to execute its ambitious pipeline of 11.4 GW of under-construction projects, including solar, wind, and hybrid capacities, and strain its ability to maintain its capex run rate of ₹240-300 billion per year over FY25-FY27.

While Ind-Ra has upgraded AGEL's long-term issuer rating to 'IND AA-'; with a stable outlook, citing the company’s strong operational performance and cash flow generation, the indictment has introduced a new layer of uncertainty. Though the agency has pointed out that the diversification in funding sources reflects the management’s capability to tie up debt in a timely and efficient manner and also reduce the finance cost.

But the reputational damage stemming from the allegations may result in higher borrowing costs, making it more challenging for AGEL to sustain its improved leverage metrics and decreasing debt-to-EBITDA ratio.

AGEL’s liquidity, though historically reinforced by strong cash flow from operations and access to global capital markets, now faces heightened scrutiny. The company’s ability to rotate construction facility debt into project-specific financing, a cornerstone of its funding strategy, may encounter delays as lenders and investors re-evaluate their risk exposure.

This crisis comes at a time when global green energy financing is under pressure, with investors demanding greater transparency and stronger governance in emerging markets.

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