Adani Ports debt buyback to cut refinancing risk

Introduction

Adani Ports and Special Economic Zone (APSEZ) has been in the news for all the wrong reasons in the last 3 months. Now, company is rightly looking to abate its refinancing risk by announcing a bond buyback to the tune of $130 million. This move will certainly aid the conglomerate in realizing healthier cash flows for the fiscal year and be able to alleviate debt concerns in the market. 

In fact, this will address the maturity of its unsecured notes worth $650 million, due in July 2024; well ahead of schedule. The Adani group’s 7 listed stocks have lost close to $114 billion in market capitalization since the Hindenburg Research report was published on 24th January 2023. The report had levelled serious charges against the group regarding stock manipulations, high debt levels and usage of offshore tax havens. These charges are yet to be proven.

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Why a debt buyback at this point in time?

In simple terms, when the trading prices of stocks fall dramatically, companies (or their private equity sponsors) may consider the option of debt buy-back in their credit agreements. The borrower buys back part of the borrower’s debt and this was widely seen during the 2008 Global Financial Crisis when several borrowers orchestrated such debt buy-back programs. These buy-backs can also serve as a means of repaying debts at a discount. Or you can call it a debt settlement with  your head held high. In addition, it also ensures that the borrowing company is now viewed more positively by the investors, the lending banks and also by the global rating agencies. 

Exorcising the ghosts of Hindenburg

Hindenburg was not just a bad balloon, but also a bad idea for the Adani group as it came in the middle of its frenetic growth path. In the case of Adani, the Hindenburg Report was released just a few days before the group’s FPO. This had led to Adani share prices nosediving and that also ultimately resulted in the follow-on public offer (FPO) of Adani Enterprises being canceled. To add fuel to the fire, existing Adani shareholders also saw their returns plunging sharply into negative territory. The time was ripe for the Adani group to ensure that they did not lose the trust of investors and lenders. The GQG deal did help to some extent, but not it was time to walk the talk on debt. The primary purpose of this tender offer is to partly prepay the company’s near-term debt maturities and convey to markets that the liquidity situation is comfortable.

How will the buyback process happen in this case?

In an exchange filing, the Adani Group mentioned that they have commenced a tender offer to purchase up to $130 million worth of outstanding 3.375% senior notes. These notes are due in July 2024 and all funding is from their cash reserves. Following this buyback, the company expects just $520 million of notes to be outstanding, which will be bought back in tranches of $130 million, over the next four quarters. 

The company is offering $970 per $1000 principal amount of notes if tendered by May 8th, and $955 per $1,000 for notes tendered after that. The tender offer will expire on May 22nd. The Adani Group has managed to prepay most of its outstanding promoter loans taken against shares, as well as some of its outstanding debt ahead of redemptions. A dominant 39% of their total debt lies in foreign currency bonds. At least, the repair process has started.

Source: Media reports