Adani Group is 'deeply overleveraged' says CreditSights

Billionaire businessman-led Gautam Adani's Adani Group has been termed 'deeply overleveraged' by CreditSights in a credit note. The strong competition between the Adani Group and Mukesh Ambani-led Reliance Industries to achieve market dominance could lead to imprudent financial decisions being made, the note said.

"We feel many group companies require equity capital injections to reduce their high leverage levels...Despite the promoter’s large net worth, it is difficult to predict the extent of the promoter’s capacity to continually provide liquidity support," it said.



Noting the strong relationships with banks and bondholders, it said "Owing to its reputation both with bank lenders and in the domestic market, and diverse asset base in stable infrastructure industries, we see a few mitigating factors to the credit concerns highlighted."

"The promoter family has currently pledged minimal stakes in the 6 listed entities. This leaves room for them to pledge their residual stake as collateral, in case they feel the need to raise funds and potentially infuse liquidity support to a subsidiary in need of cash."

In the worst case, Adani's debt-funded growth plans could eventually spiral into a massive debt trap but then retains their 'market perform' ratings on the two Adani credit they cover (Adani Green Energy and Adani Ports) and concluded that they 'remain cautiously watchful'.

"The Adani Group behemoth continues to expand aggressively in both its traditional and new business ventures, a majority of which operate in capital-intensive sectors. Additionally, this expansion is both organic and inorganic in nature, funded predominantly with debt, leading to elevated leverage ratios. In a worst-case scenario, ambitious debt-funded growth plans could eventually spiral into a massive debt trap and possibly culminate in a distressed situation or default of one or more group companies, which may impact the broad Indian markets and economy," the note said.

Readers may note that CreditSights is a separate and independent firm from Fitch Ratings, although both companies share the same parent company.