Shares of Adani group of companies suffered huge declines during Monday’s trading session. All the group stocks tanked, with its flagship company Adani Enterprises Ltd (AEL) slumping by more than 8%. The same stocks have put in a massive rally over the past two years. The correction may be attributed to the global negative macro-economic environment and the group’s huge debt. Adani groups’ debt papers have been falling in contrast to its rising equity shares.
AEL, which has just been included in Nifty, has surged by 53.19% in the past six months whereas the NIFTY has declined 6.46% in the same period. AEL has corrected more than 20% from its all-time high.
Other Adani stocks like Adani Green Energy, Adani Total Gas and recently acquired Ambuja Cement shed more than 5%. A few other group stocks which managed to decline around 5% were: Adani Ports &SEZ, ACC, Adani Power, Adani Transmission and Adani Wilmar.
The massive outperformance of Adani shares over two years has surprised all market observers. Indian mutual funds and even foreign institutional investors have negligible holding in Adani group companies. Only Life Insurance of India is a significant institutional investor. Among Indian banks, State Bank of India (SBI) is the most enthusiastic lender of Adani’s new projects.
Adani Debt Paper Facing a Rout
While the stocks of Adani group have outperformed the markets, its debt instruments are facing a rout. The bonds of Adani group companies have declined this year due to concerns about the group debt. According to Bloomberg, bonds of group companies, including Adani Green Energy and Adani Transmission Step-One Ltd, mostly underperformed the broader Indian market.
Adani Ports' dollar bonds have declined more than Indian peers and its notes due in August 2027 were recently down to an all-time low.
Bloomberg says that Adani Ports’ seven dollar-denominated notes declined around 14% on average so far this year, while Adani Transmission Step-One’s notes due in 2036 and Adani Electricity Mumbai’s 2030 securities have lost more than 17% each. This exceeds 10% decline for Indian dollar debt overall and a 13% drop in US currency notes.
Not all Adani bonds have underperformed the broader market, even though they’ve also lost money. Adani Green Energy’s 2024 notes lost 9% and Adani Ports’ securities due in the same year dropped 4.4%, Bloomberg added.
Fitch group unit Credit Sights had raised concerns about Adani group’s debt, in a recent report. It said that the conglomerate’s rapid expansion into areas such as renewable energy and media has left it with leverage that it said was described as elevated and 'a matter of concern'.
Recent Fund Raise
Adani Enterprises, Adani Road GRICL Limited (ARGL) and Adani Road STPL Ltd (ARSL) will, together, raise up to Rs800 crore through non-convertible debentures (NCDs). These NCDs have a tenure of three years from the date of allotment carrying AA- ratings from CRISIL. The entities will raise funds from the market to buy road projects from Macquarie Asia Infrastructure Fund (MAIF). Each of them will raise up to Rs400 crore.
Adani Enterprises has recently received a loan worth Rs10,238 crore from SBI for a road project in UP. The projects were awarded to AEL on a design build finance operate transfer (DBFOT) basis in December 2021, having 30-year concession period. This greenfield Ganga Expressway Project will cost a total of Rs23,060 crore to complete.