'The Excessively Ambitious Business Goals Of Gautam Adani Might Lead To A Huge Debt Trap'

The fourth richest man in the world, billionaire Gautam Adani, has recently joined the cement, airport, and data centre industries. CreditSights, a Fitch Ratings organisation, is being "cautiously alert" due to the group's aggressive objectives, the majority of which have been fueled by debt.

Fitch stated that the majority of Adani Group's ambition for expansion is debt funded across both existing and future companies in a study titled "Adani Group: Deeply Overleveraged." The worst-case scenario, according to the research, involves excessively ambitious debt-funded expansion plans that might ultimately spiral into a major debt trap and could result in a distressed position or default of one or more group firms. 

On the two Adani Group firms covered under its coverage, Adani Green Energy and Adani Ports and SEZ, it has kept the "Market perform" recommendations. The Adani company just paid $10.5 billion to purchase the cement businesses of Holcim, making it overnight the second-largest cement operator. It most recently paid $1.18 billion to acquire Israel's Haifa port.

In addition to investing in green hydrogen, airports, highways, alumina, copper refining, data centres, and expanding its coal and PVC businesses, Adani group wants to boost its renewable portfolio by five times. 

There isn't much proof that equity capital has been added; instead, the company is dependent on bank loans, internal accruals (i.e., operational cash flows), and debt capital market funding. A "few" instances when it attracted equity injections from other strategic or financial partners come to mind, such as TotalEnergies' 20% share in Adani Green Energy and 25% stake in Adani New Industries.

However, according to the research, "they pale in contrast to the entire capex demands of the relevant business." The corporate chairman's personal fortune is of little consolation to the agency either. Bill Gates has been replaced by Gautam Adani as the fourth richest person in the world. The value of his assets in the Adani Group is primarily responsible for this fake riches, though, as we point out. It is challenging to estimate the family's capacity to inject their own capital in the event that any of the Group firms needs equity infusions from the promoter, according to the research.