The total liabilities of the Adani Group exceed 1% of India’s GDP
The issue of Adani Group, an Indian emerging conglomerate suspected of financial fraud, has not shown signs of abating. The share price has further declined due to the forced cancellation of the capital increase, and the interest rate of some corporate bonds has also surged. The total liabilities of 10 listed companies in the group have reached 3.4 trillion rupees, exceeding 1% of India’s nominal GDP, forcing Adani Group to adjust its expansion strategy.
Japan Economic News (Nikkei Chinese Network) surveyed the balance sheets of Adani Group-affiliated companies listed in India through QUICK FactSet and made a simple summary of liabilities. Including ACC and Ambuja Cements acquired in 2022, the liabilities of 10 affiliated companies totaled 3.3954 trillion rupees. According to the IMF’s estimates in October 2022, India’s nominal GDP was 27.3 trillion rupees.
Although the shareholder equity ratio of the 10 companies was 25%, Adani Green Energy, which is engaged in energy business, was only 2% as of March 2022. There have been opinions that some companies in Adani Group have problems of excessive debt.
Although the 10 listed companies have a total of more than 4.8 trillion rupees in assets, investors are strongly concerned about its huge debts. As Adani Group has many unlisted companies, the total liabilities are likely to be even larger.
After being accused of financial fraud suspicions, Adani Group, a US investment company, Hindenburg Research, released a report on January 24 that the group has been engaged in financial fraud and stock price manipulation for a long time. It is also pointed out that many companies have unstable financial foundations and few liquid assets. Although Adani denied the above suspicions, the stock prices of its companies still fell collectively. In the week after being accused of financial fraud, its market value evaporated by nearly half.
The group’s core company, Adani Enterprises, announced on February 1 the cancellation of the originally planned 20 billion rupees public offering. In a video released on February 2, group founder Gautam Adani explained that the cancellation of the public offering was to protect investors in the context of falling stock prices, and he emphasized that “the balance sheet is very sound”.
Gautam Adani announced on February 6 that he and his family had prepaid the more than 1.1 billion US dollars borrowed against the stocks of his companies.
The Adani Group is a newly emerged conglomerate mainly engaged in infrastructure related businesses, which has been taking an expansion route such as acquisition in recent years. The strategy of borrowing with the stock of its subsidiaries as collateral has been forced to change. The interest of part of the corporate bonds of its subsidiaries has been affected by the crisis, once rising from 6% to the range of 30%. There have also been reports that Adani corporations have stopped issuing public bonds originally used for other purposes.
This incident caused a credit crisis for financial institutions, including those with transactions with the Adani Group, and even caused the stock price of Indian state-owned banks with transactions with it to fall. The Reserve Bank of India (central bank) issued a statement on February 3, saying “the bank is resilient and stable”.
On February 8, the Reserve Bank of India announced an increase of 0.25% in the policy rate (repurchase rate) to 6.5%. Under the background of continuously increasing interest rates to cope with inflation, the Governor of the Reserve Bank of India, Shakti Kanta Das, emphasized at the press conference on the same day, “the Indian banking system is strong and has not been affected by this individual event.”