CreditSights Admits To Errors, Revises Calculation Of Adani Debt

CreditSights has admitted to making errors in calculation of gross debt and Ebitda estimates for two Adani Group companies.

<div class="paragraphs"><p>A terminal at Adani Ports's Mundra facility in Gujarat. (Photo: Amit Dave/Reuters)</p></div>
A terminal at Adani Ports's Mundra facility in Gujarat. (Photo: Amit Dave/Reuters)

CreditSights, the research arm of the Fitch Group, has admitted to making errors in calculation of gross debt estimates and Ebitda estimates for two Adani Group companies in its Aug. 23 report.

The research arm, in a new report released on Sept. 7, disclosed that for Adani Transmission Ltd., it has corrected its Ebitda estimate from Rs 4,200 crore to Rs 5,200 crore. For Adani Power Ltd., it has corrected its gross debt estimate from Rs 58,200 crore to Rs 48,900 crore.

The research arm said these corrections did not change its investment recommendations for two of the six companies that it covers—Adani Ports & Special Economic Zone Ltd. and Adani Green Energy Ltd. It maintained market performer recommendations on the two companies.

It does not have formal recommendations on the other four Adani Group entities—Adani Enterprises Ltd., Adani Power, Adani Total Gas Ltd. and Adani Transmission.

The research arm had on Aug. 23 published a report titled ‘Adani Group: Deeply Overleveraged’. The current correction and clarifications come after it spoke to Adani Group’s finance team in the week to Aug. 22.

Currently, according to CreditSights, APSEZ’s rising acquisition appetite is mitigated by its leading market position, solid liquidity position and robust anticipated FY23E Ebitda growth, the report said.

The research arm said Adani Port’s pro forma net leverage, which includes Haifa and Tajpur port costs, stood at four times. It has not factored in a potential Concor acquisition in its calculations based on FY22 numbers.

Accordingly, CreditSights has also corrected the leverage ratios which in its earlier report was highlighted as elevated leverage for Adani Green following the company’s expansion through both organic and inorganic means. Its FY22 net leverage at 14.7 times may look optically high as acquisition of SB Energy portfolio was only completed in September 2021 and hence contributed only six months of revenue and Ebitda.

Extrapolating for FY22, net leverage would improve to around three times. In addition, the partly commissioned capacity of 1.3 GW was not added as technical approvals were awaited and would further ease the leverage.

CreditSights calculated the Ebitda based on the last 12 months’ Ebitda and has not considered the run-rate Ebitda, which Adani considers, is based on estimated revenue, and Ebitda from new operational and acquired assets.

It said it has taken comfort from the steadily deleveraged balance sheet of Adani Power in the last three years. For Adani Green, its overall balance sheet appears to be extremely healthy, and it appears to remain so in the near future. It anticipates mild improvement in Adani Transmission’s FY23 credit metrics on the back of robust estimated FY23 Ebitda growth and deleveraging efforts from a $500 million equity investment by IHC.

The research arm has clarified that it has not based its Ebitda on the run-rate basis, did not include interest earned on reserves in total Ebitda and did not exclude sponsor debt, that is, debt provided by the promoters to Adani entities which is subordinated and unsecured and serviced only through distribution account which is at the end of cash flow waterfall.

According to Adani Group, the sponsor debt that is close to Rs 30,000 crore should be excluded on gross and net basis, as there is no obligation to pay principal or interest to the promoters.

* Headline of the story has been updated.

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