Adani Group overleveraged, carries three times as much debt as it should: Aswath Damodaran

The Adani Group carries three times as much debt as it should, Aswath Damodaran, whose work has been widely published in leading finance journals, said in his blog post. However, the valuation guru also said that it shows bad business practice and not con as alleged in the US-based short seller Hindenburg report.

“The Adani Group collectively carries about three times as much debt as it should, confirming that the group is over-levered, but note that this is bad business practice, not a con,” Damodaran said.

Damodaran argued that the cost of capital shows that there is little, if any, benefit in terms of value added to Adani from using debt, and significant downside risk unless the debt is being subsidized by someone (government, sloppy bankers, green bondholders).

On Adani Group’s flagship company, Damodaran said, “Adani Enterprise carries too much debt, with an actual debt of 413,443 million more than double its optimal debt of 185,309 million, and reducing its debt load will not just lower its risk of failure, but also lower its cost of capital.”

This company, the professor of finance at New York University’s Stern School of Business said, is part of a family group, where higher debt at one of the Adani companies may be offset by less debt at another.

Meanwhile, Adani Group said that it plans to prepay or repay share-backed loans worth $690 million to $790 million by March-end, Reuters reported.

The plan comes even as the group holds a fixed-income roadshow this week in Singapore and Hong Kong to shore up investor confidence amid share price falls and a regulatory probe.

Adani Green Energy Ltd also plans to refinance its 2024 bonds via an $800 million, three-year credit line.

The group presented both plans to bondholders in Hong Kong on Tuesday, the people said. The three-day roadshow is scheduled to end on Wednesday.

Chief Financial Officer Jugeshinder Singh told Bloomberg News the group is not looking to refinance debt or raise capital.

Seven listed Adani group companies have lost more than $140 billion in market value since a 24 January report by Hindenburg Research alleged stock manipulation and improper use of tax havens, and flagged concerns over debt levels.

Adani has rejected the allegations and denied wrongdoing.

Shares of flagship Adani Enterprises Ltd were up over 8% in Tuesday’s trade, whereas Adani Green Energy was up 3.75%.

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