Gautam Adani, chairman of the Adani Group.
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While Gautam Adani received a vote of confidence from investors in the latest $2.5 public offering on Tuesday, Wall Street still measures up for the global financial sector.
As Adani’s empire grew, his group forged new ties with foreign banks. At the same time, it reduced the share of Indian banks in the loan figure – from 86% in fiscal 2016 to 33% in 2022, according to analysts.
Indeed, Indian banks make up 0.6% of the group’s sector loans, according to JPMorgan. This may seem low, but the Adani Group’s total exposure is still about $9 billion, wrote Saurabh Kumar, an analyst at JPMorgan.
“While Adani’s debt is not new news, the Hindenburg report has prompted investors to reexamine the Indian billionaire’s relationship with the bank,” Ravi Ahuja, a professor at DeSales University, told CNBC.
Activist investor Bill Ackman, founder of hedge fund Pershing Square, tweeted Sunday: “There is too much responsibility for the banks.” Ackman was referring to this week’s share sale for flagship company Adani Enterprises, which was crucial to getting a full subscription on Tuesday.
An Adani Group spokesperson was not immediately available for comment when contacted by CNBC.
Outside help?
Jefferies analyst Prakhar Sharma wrote that, for now, the risk to Indian banks is low, saying, “we do not see any material risk to the Indian banking sector.”
Indian banks with exposure to the Adani Group include State Bank of India, Life Insurance Corp., Union Bank of India, ICICI and Axis as well as others.
“We don’t expect a run on the banks, but if the situation worsens, outside help will be needed,” said one official at India’s state-run bank, who spoke on condition of anonymity because of the sensitivity of the topic. to CNBC.
While Adani’s dependence on Indian banks has gradually decreased, the capital used to start new infrastructure projects financed by foreign banks has increased dramatically – from zero to 18% of total debt in the past six years, according to Jefferies’ India team.
“Most of the additional funding for the group for new businesses and acquisitions has come through overseas sources,” according to Adarsh Parasrampuria, an analyst at the CLSA investment group.
This is among the latest deals for Adani Switzerland’s Holcim cement business for $10.6 billion in mid-2022. The deal is underwritten by Barclays, Deutsche Bank, Standard Chartered and Mizuho, as well as other international banks.
Private equity also plays an important role. In 2021, Warburg Pincus paid more than $100 million to buy a small stake in Adani Ports and Special Economic Zones Ltd. A spokesman for Warburg Pincus was not immediately available for comment.
Last year, the Apollo credit fund provided a $750 million loan to Mumbai International Airport, a public-private partnership between Adani Airport Holdings Ltd. (74% ownership) and Airports Authority of India (26% of ownership). An Apollo spokesperson was not immediately available for comment when contacted by CNBC.
Outside of banks, there is investor Abu Dhabi International Holding Co. announced plans there to invest $381 million in the Adani conglomerate, although it did not disclose the price.
In a company release, IHC CEO Syed Basar Shueb, who is also an investor in SpaceX, said, “Our interest in Adani Group is driven by our confidence and belief in the fundamentals of Adani Enterprises Ltd; we see strong potential for growth from a long-term perspective and added value for the shareholders.”
Abu Dhabi’s investment along with an oversubscribed $2.5 billion public offering prevented Adani Group shares from falling on Tuesday.
Of the seven companies operated by the Adani Group: Adani Green Energy, Adani Power and Adani Ports have the most debt, according to analysts.
“If the share price decline does not stop, Adani may have to look at financing options, including talks with investors in the Middle East who want to diversify,” a banker in Mumbai, India, who also chose to remain anonymous due to the sensitivity of the topic, told CNBC.
Hindenburg’s allegations
In a 413-page report Sunday, Adani attacked Hindenburg’s short sellers and allegations of fraud and share price manipulation. In an attempt to stroke the nationalist spirit, Adani went on to argue that Hindenburg’s assessment was a “calculated attack on India.”
Gautam Adani, the richest man in Asia and once second only to Elon Musk, fell out of the 10 richest people in the world to 11 in the Bloomberg Billionaires Index, as of Monday.
— CNBC’s Jihye Lee contributed to this article.