Despite facing significant challenges in recent months, including accusations of favoritism and stock market losses, Gautam Adani, the Indian tycoon, has managed to maintain strong relationships with both the Indian government and global banks. Adani’s proximity to India’s government has remained intact, despite opposition politicians criticizing him for alleged favors from Prime Minister Narendra Modi. The businessman has always denied these allegations, and Modi has chosen to ignore them.
Furthermore, Adani has managed to maintain substantial relationships with 20 global banks, the same number as last year. Financial institutions such as Sumitomo Mitsui Financial Group, DBS Group Holdings, Mitsubishi UFJ Financial Group, and Standard Chartered have continued their partnerships with Adani and appear comfortable with their exposure to the conglomerate. Adani’s ability to deal with extreme liquidity stress, coupled with his equity partners, like French oil giant TotalEnergies, returning with additional investments, may make it easier for bankers to sell the story to their credit committees.
Adani’s decision to tap overseas institutions rather than Indian banks, especially state-run lenders, is likely a strategic one. Although Indian banks may offer cheaper financing, it could invite greater political scrutiny, particularly in anticipation of next year’s general elections. Additionally, the capital markets remain apprehensive following accusations of stock-price manipulation and accounting fraud. Despite denying these allegations, Adani had to cancel a share issue, and France’s Total postponed a green-hydrogen partnership, causing a significant decline in Adani’s market value.
However, Adani’s relationships with banks have not been affected to the same extent as the capital markets. This is largely due to the conglomerate’s hard assets, which include ports, airports, mines, power stations, and more. Banks view Adani as a valuable source of infrastructure and are willing to finance these assets. Adani’s core infrastructure, which accounts for 89% of total assets, is considered safer to finance now because it is backed by a higher equity percentage and consistently generates significant earnings. While leverage remains a concern, Adani’s debt reduction efforts and partnerships with GQG Partners and the Qatar Investment Authority have strengthened its liquidity position.
Despite the challenges faced in the capital markets, Adani’s strong relationships with banks and government indicate a promising future for the conglomerate. As the company continues its expansion and addresses concerns raised by investors, it can build trust and secure financing for its ambitious projects, such as cement production and the transformation of Mumbai’s largest shantytown.
Definitions:
– Liquidity stress: A situation where a company faces a shortage of cash or liquid assets to meet its financial obligations.
– Equity partners: Companies or individuals who invest in a business in exchange for ownership shares or equity.
– Capital markets: Financial markets where long-term securities and assets are bought and sold.
– Hard assets: Physical assets such as infrastructure, equipment, and property.
– Leverage: The use of borrowed funds to finance investments or operations.
Sources:
– Hindenburg Research: A New York research firm that accuses companies of fraud and manipulation.
– Bloomberg Intelligence: A research platform that provides in-depth analysis and insights into the financial markets.
– Financial Times: An international daily newspaper that covers business, economics, and politics.
– Organized Crime and Corruption Reporting Project: A global network of investigative journalists that exposes corruption and organized crime.
