New Delhi, Aug 23 (Representative) Billionaire Gautam Adani-led Adani Group has pursued an aggressive expansion plan that has pressurized its credit metrics and cash flows, CreditSights said in a report on Tuesday, warning that overly ambitious debt-funded growth plans could eventually spiral into a massive debt trap. The report said that the Group has been investing aggressively across both existing and new businesses, predominantly funded with debt, resulting in elevated leverage and solvency ratios.”This has understandably caused concerns about the Group as a whole, and what implications it could have on the group companies that are bond issuers. In the worst-case scenario, overly ambitious debt-funded growth plans could eventually spiral into a massive debt trap, and possibly culminate into a distressed situation or default of one or more group companies,” said CreditSights in its report titled ‘Adani Group: Deeply Overleveraged.
‘”Overall, we remain cautiously watchful of the Group’s growing expansion appetite, which is largely debt-funded. The report noted that Adani Group is increasingly venturing into new and/or unrelated businesses, which are highly capital intensive and raises concerns regarding spreading execution oversight too thin. “We see little evidence of promoter equity capital injections into the group companies, which we feel is needed to reduce leverage in their stretched balance sheets,” it said. The report said that potential strong competition between the Adani Group and Reliance Industries to achieve market dominance could lead to imprudent financial decisions being made.
“In the Adani Group’s favor, we take comfort in its solid banking relationships with both domestic and international banks, which have been willing to lend the group large amounts for both its existing businesses and new ventures,” it said. The report noted that Adani Group has a strong track record of churning out strong and stable companies through its Adani Enterprises arm, and boasts a portfolio of stable infrastructure assets tied to the healthy functioning of the Indian economy. “We also believe there are policy tailwinds supporting the development of such infrastructure assets, and note that founder Gautam Adani enjoys a strong relationship with the ruling Modi administration,” it said. An email seeking response from Adani group on the observations made in the CreditSights report remained unanswered till press time.