Adani Group to prepay loans and reduce capex
What's the story
Adani Group is in damage control mode after a damning report by Hindenburg Research led to its listed companies losing over half their value.
The conglomerate plans to pacify investor concerns through a multi-prong approach, which includes prepaying loans against shares (LAS) and reducing capital spending.
Meanwhile, unsecured loans by the group are at risk of being recalled by banks.
Context
Why does this story matter?
The Hindenburg report accusing Adani Group of stock manipulation and accounting fraud has changed the market's perception of the conglomerate.
Investors, credit rating agencies, lenders, and regulators are now looking at the group with suspicious eyes. With Adani stocks unable to disentangle themselves from the Hindenburg mess, the scrutiny will only increase in the coming days.
LAS
Adani Group plans to reduce LAS exposure immediately
Adani Group plans to pre-pay a large part of its Rs. 7,000-8,000 crore LAS portfolio taken at the shareholder level. The group aims to reduce LAS exposure immediately.
In the next 30-45 days, Adani Group aims to bring its LAS down to zero, the Economic Times reported.
The due date of these loans ranges from May this year to January 2024.
Funds
The conglomerate is ready to offer additional shares as securities
To organize funds to prepay loans, Adani Group's promoter family has reportedly unwound some of their shareholding positions, availed strategic finance facilities, and liquidated investments.
The group is also ready to offer additional share securities to pacify investor concerns. Investors are worried that banks may ask Adani Group companies to start paying some of their short-term debts to reduce debt levels.
Capex reduction
Adani Group may revise the growth timeline of certain businesses
Days after it called off the Rs. 20,000 crore Adani Enterprises FPO, Adani Group has decided to put a clamp on its capital spending, per a Mint report.
Part of the funds accrued through the FPO was supposed to be deployed in several projects. Since that is out of the picture now, Adani Group might consider a 16-18 months growth timeline in certain businesses.
Alternatives
Domestic lenders don't plan to cut off unused credit lines
The conglomerate plans to use alternative funding channels, including internal accruals, private placements, and promoter equity funding.
There are concerns about the group's lenders cutting off its access to credit lines. Per Mint, domestic lenders will let Adani Group use sanctioned, but unused credit lines.
Bankers are worried that if they cut off those credit lines, it might result in default.
Unsecured loans
Alternate sources will be required if unsecured loans are recalled
On the other hand, the group's unsecured loans are at risk of being recalled by banks. Adani Group companies have unsecured loans totaling Rs. 11,574 crore.
In its FPO document, the conglomerate had disclosed these unsecured loans as one of the risk factors. Per the document, if lenders recall these loans, the group will need to find alternate sources of financing.