Promoters' loans, rising earnings help Adani cos to slash interest costs

Group plans to list infra SPVs to slash debt

Low-cost loans worth Rs 35,000 crore given to various listed Adani group companies by the promoter entities have helped them incubate long gestation projects such as roads, ports, airports and have reduced finance costs in FY22.

The group’s capital management strategy in the coming years is to tap equity markets after commissioning its various ongoing infrastructure projects and use the IPO proceeds and company’s own earnings to reduce debt, said a banker privy to the group’s plans.

The group’s listed entities reported cash and cash equivalents of Rs 27,579 crores, and net external long-term debt of Rs 1.37 trillion for the 2022 fiscal year, the banker said.

The Adani group companies’ gross debt include Rs 21,000 crore of short-tenure debt, which is balanced against receivables from various government contracts. The group debt also consists of Rs 23,000 crore of long-term debt for projects under construction of various verticals. The group companies reported total gross debt of Rs 2.2 trillion in the fiscal 2022 (see chart).

“The promoter loans are like quasi equity with no repayment or service obligations, thus reducing the finance costs of the group companies,” the banker added.

After adjusting for debt — used for projects under construction and supported by long-term revenue contracts such as the power purchase agreements — the net long-term debt of the group was Rs 1.14 trillion. “Against the group’s debt, the gross block assets across listed companies grew 2.3 times to Rs 3.15 trillion in FY22,” said the banker.  The group took advantage of falling interest rates and its average interest rates fell from 8.53 per cent to 8.13 per cent in the last six years.

In the last five years, the capital structure of the group has transitioned to become consistent with asset life, said an analyst. “Of the company’s long-term debt from banks, 47 per cent is in the form of annuity, ie, the rate is fixed, tenor is matched to contract life of 20 years or higher. Thus, there is no need for any refinance of these loans and it will amortise in line with the life of the underlying contract,” the analyst said.

The earnings before interest, depreciation and tax of the group companies rose 22 per cent to Rs 41,570 crore while the interest rate coverage ratio improved to 2.8 times in FY22.

When contacted, an Adani group spokesperson declined to comment.

Analysts said the credit profile of Adani Enterprises, the Group’s incubator of new projects, reflects its track record of incubation of businesses across various verticals, completion of substantial capital expenditure in subsidiaries and the strong recovery of passenger traffic in the airport segment in the last six months. The domestic passenger traffic has reached 98 per cent of pre-Covid levels in April and May this year and the international traffic will reach 80-85 per cent of the pre-Covid level in FY23, said a report by rating firm ICRA on Monday.

“Successful incubation and independent listing of various entities over the years with the latest being Adani Wilmar has also strengthened market capitalisation of the Adani group companies. Moreover, the pledge of shares by promoters has reduced substantially in most of the entities of the Adani group, including AEL, over the last two years,” said an analyst with Care Ratings in a statement.

‘’The financial flexibility of the Adani group wherein promoter family owns a substantial stake in most of the entities, enhances strategic importance and economic incentive for the promoters to support diverse ventures of AEL in the case of exigencies. The completion of the capex at Australia mining and railway subsidiaries followed by commencement of trial runs in February this year considerably mitigates the project implementation risk,” the Care Rating statement said in April.