5 mins read . 31 May 2023
As Gautam Adani’s conglomerate gradually emerges from the chaos created by the Hindenburg report, there is a more practical challenge coming up for the Adani group. Who will fund the capital-hungry Adani flagships with fresh cash infusion; both in equity and in debt? Adani has a lot of business tied to larger government dreams and so there is a lot at stake. For now, the group faces a huge funding gap and to begin with, the group may have to internally bring in as much as $700 million in the next 2 years just to meet current commitments. We are not even talking about the future aggressive plans of the group. The billion-dollar question is; who will fund the juggernaut?
For those who thought that the Adani group had shelved many of its grand investment plans, it is time to rethink. Post the Hindenburg crisis, Adani had only put such plans on hold, it was never off the radar. The big-ticket investment plans of Adani Green Energy, Adani Enterprises and Adani Transmission are all still intact. In fact, the Adani group has not even once spoken about toning down its billion-dollar investments into green hydrogen, data centres and renewable energy. All the plans are still afoot.
However, a lot appears to have changed for the group. Global banks have been wary of going overboard on the funding plans of the group. In addition, Adani group may think twice about equity plans, especially after it had to shelve the FPO plans of Adani Enterprises earlier this year due to the sharp fall in the stock price. Essentially, Gautam Adani has to make an offer that the banks and the equity investors cannot refuse. That would be the key, but for now, there is already some interesting building up once again in the Adani story.
Adani had earlier announced plans to raise as much as $1 billion through the issuance of new shares by one of the two Adani companies. This was after the short-selling crisis wiped off $120 billion from the market cap of the Adani group. It was this price crash that forced the group to also withdraw its FPO plans. For now, the group plans to bridge the gap by raising around $1 billion through private placement of equity.
The $1 billion fundraising will help them achieve buoyant growth momentum and fund their capex requirements. Quantitatively, the capital infusion required by March 2026 has surged to $700 million by virtue of cost overruns and lackadaisical borrowings. This has led India Ratings to attach a “negative” outlook to Adani Transmission to reflect the uncertainty around debt funding. So, it is not just the funding needs, but even the uncertainty is hurting for now.
In the last couple of months, global investors like Rajiv Jain of GQG Partners have reposed their faith in the Adani group in general and Gautam Adani in particular. GQG Partners was one of the first investors to show solidarity and support towards Adani following the Hindenburg Report. The fund now holds Adani group shares worth $3.5 billion.
To quote Jain, “Adani’s best possible infrastructure assets and quality of execution at a large scale convinced him to put his money into the conglomerate.” In another boost to the group, the Supreme Court recently found no evidence of regulatory failure or market manipulation in the Adani case study. That has addressed the corporate governance questions, but the issue of funding the gap still remains. Hopefully, Adani’s charm should work out a solution.
Content Source: Economic Times