Adani promoters prepay $1.1 billion loans backed by share pledges

Mumbai: Gautam Adani and his family have repaid ₹9,250 crore ($1.1 billion) of debt backed by shares early as the cement-to-coal conglomerate sought to soothe investor nerves. This follows a $110 billion erasure of equity value after the Hindenburg report was released on January 24.

"This is in continuation of promoters' assurance to prepay all share-backed financing," the Adani Group said.

These loans against shares (LAS) were taken by promoter entities and backed by share pledges. ET was first to report Monday morning that about ₹8,000 crore of LAS was being prepaid by the Adani family, hours before a formal announcement.

Adani Ports Stock Jumps 9.46%
Some of the debt from lenders such as Credit Suisse, JP Morgan, Citi, Barclays, JM Financial and mutual funds was due in May. A part of this had already been rolled over to September while other repayments were due this calendar year-end as well as January 2024.

"In light of recent market volatility and in continuation of the promoters' commitment to reduce the overall promoter leverage backed by Adani listed company shares, we are pleased to inform that promoters have paid the amounts to prepay $1,114 million ahead of its maturity of Sep 2024," an Adani spokesperson said in a press release.

About 168 million Adani Ports and Special Economic Zone (APSEZ) shares, representing 12% of the total promoters' holding, were freed from pledges. The total promoter pledge had been 18-20% before Monday. The promoter holding in APSEZ at the end of December 2022 was 65.13%. The release triggered a 9.46% gain in the counter, which closed at Rs 546 on the BSE. Its market cap rose by Rs 10,195 crore to Rs 1.18 lakh crore.

The promoters are believed to have unwound some existing investments, and availed finance facilities and other shareholder positions in addition to tapping the family office to organise funds. The family has substantial real estate assets in Mumbai and Ahmedabad.

"The plan is within 30-45 days, the LAS portfolio will be zero," said an executive in the know. "They want to prove within a quarter they have the ability to prepay Rs 20,000 crore of loans and LAS, even at the expense of curtailing short-term growth to regain investor faith."

In addition, about 3% (27.56 million shares) of Adani Green Energy and 1.4% (11.77 million shares) of promoter pledges in Adani Transmission Ltd are getting released through the advance payment.

According to NSE data, at the end of December 2022, the promoter stake in Adani Transmission was 74.19%, with 6.92% being pledged. Similarly, Adani family entities as promoters owned 60.75% of Adani Green, with 4.36% being pledged. However, despite the news of reduced share pledges, prices of Adani Transmission and Adani Green hit the lower circuit barrier of 10% and 5%, respectively, on Monday.

"Lower stock pledge and bond buyback in the next couple of days will instill confidence in investors," said Arun Kejriwal, founder, Kejriwal Research & Investment Services. "The real confidence for Adani Group will emerge if all listed companies in their upcoming earnings will declare their debt and maturity pattern as well as declare their plan to prune leverage on their balance sheet in the next 12-18 months."

Profitmart Securities head of research Avinnash Gorakssakar said, "Investors would be closely looking in the next three-six months how the Adani Group will pursue its aggressive growth on infrastructure and green hydrogen projects."

JP Morgan analysts Varun Ahuja and Aman Aggarwal said in a February 3 report: "Our concerns are more at promoter-level uncertainty (shareholder structure, unknown leverage if any, etc.) rather than opco level."

As per calculations, based on management guidance, promoter-level loans amount to $1.8 billion and "aggregating all share pledges at their various listed entities, we arrive at $5.2 billion of pledged stake value," said Ahuja and Aggarwal in the report. "Also, we note that they have $5 billion of Holcim India related debt, of which $1.0-1.5 billion is margin financing, per Debtwire, while the rest is senior debt. The cement asset had over $1 billion cash as of Sep-22 and annual EBITDA of ~$700m-800m... hence pro forma net leverage under 3.0x as well."

Investors and rating agencies are worried that pressure could intensify and banks could ask Adani Group companies to start part-repaying some of the near-term debt to deleverage. Bond markets panicked last week after banks such as Citi and Credit Suisse stopped accepting Adani securities as collateral, sparking fears of a domino effect.

Adani Green Energy's 4.375% bond maturing in August 2024 was trading at 73.14 cents on the dollar with a yield of 27.30% on Monday at 8:14 pm India time, Bloomberg data showed. APSEZ's 3.1% bond maturing in February 2031 has been trading at 68.18 cents on the dollar with a yield of 8.93%. Adani Renewable Energy's 4.625% bond due in October 2039 was trading at 73.09 cents on the dollar with a yield of 7.64%.

According to CLSA, the Adani Group has foreign currency debt of $7.5 billion and $1.9 billion of maturity is scheduled in the second half of 2024. Of this, two-thirds is related to Adani Green Energy.