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CreditSights report: Adani Group in a debt trap?

In the past few months, Gautam Adani‘s conglomerate firm, Adani Group, based in Ahmedabad, has made a number of acquisitions in a variety of industries, including power, ports, energy, telecom, etc. The majority of these acquisitions are financed with the aid of debt and other such instruments, with the Adani Family offices’ shares and scribes being pledged as security.

The largest individual in Asia now owns a worldwide conglomerate corporation that is “seriously over leveraged,” according to a CreditSights assessment.

According to the research, these investment activities put pressure on the MNC’s credit metrics because the majority of acquisitions and asset purchases are conducted via debit instruments. The company’s cash flow is projected to be severely impacted in the near future because of the significant debts and interest payments.

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Companies typically inject funds from shareholders to ease the strain on balance sheets. The funds provided by the shareholders are subsequently applied to strategic acquisitions and investments. In the case of the Adani Group, the promoters’ and shareholders’ equity capital injection is quite low, making the activity of acquisitions and investments an expensive affair.

With the aid of a burgeoning Indian economy and liberalisation, Gautam Adani, who began as a tiny businessman, transformed his enterprise into a full-fledged commercial empire.

ACQUISITIONS USING DEBT

By making timely strategic investments in ports, mineral extraction, transportation, and now renewable energy over the past few years, Adani Group has grown the depth and effect of the company on the Indian economy.

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The industry was puzzled by an Adani Group subsidiary’s modest but considerable performance in the recently concluded 5G spectrum auction.

The conglomerate company has also been foraying into new ventures and industries in which it has little to no prior experience.

Credit rating agencies view this as a bad quality since poor management and execution in these emerging businesses could even lead to the company as a whole falling into a debt trap. It’s also vital to remember that the majority of the Adani Group’s new operations require a lot of finance.

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The rapport between Indian Prime Minister Narendra Modi and Gautam Adani is viewed favourably in the report. The research by CreditSights also makes a compelling case for the conglomerate’s close ties to numerous major banks in the Indian economy.

The group has continued with its expansion goals quickly thanks to the backing of the business entity’s owners. The research also identified a number of flaws in the whole expansion process, including the company’s exposure to governance and ESG concerns.

CreditSights acknowledged the significant influence of the Adani Family on all the conglomerate’s firms, but the credit monitoring company also warned that the family might put a “all stop” to prevent exposure to a direct liquidity and valuation issue. This is done with the understanding that any subsidiary firm default will have a cascading effect on other Adani-owned entities.

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