Thursday, February 9, 2023

As banks refuse to refinance, the Gautam Adani Group will prepay a $500 million loan

Gautam Adani group to prepay $500 million loan as banks balk to refinance


MUMBAI: Following a short seller report that caused the Adani Group's assets to plummet, some banks refused to refinance the debt, so the group plans to prepay a $500 million bridge loan that is due next month.

Adani used a loan of $4.5 billion from Barclays Plc, Standard Chartered Plc, and Deutsche Bank AG last year to purchase the cement assets of Holcim Ltd. On March 9, a portion of that loan is due.

According to people familiar with the situation, the lenders were discussing refinancing the loan up to a week prior to the critical Hindenburg Research report's publication. According to the individuals, who requested anonymity to discuss a private matter, those negotiations came to a standstill following the report that claimed fraud resulted in a massive selloff, reducing the banks' willingness to refinance.

The development coincides with comments from France's TotalEnergies SE that a multi-billion dollar plan to produce green hydrogen with the Indian tycoon has been put on hold pending audits of his conglomerate. This is the first concrete sign that global banks are becoming more wary of financing Adani's empire. There are indications of skittishness among international investors that could dampen a nascent rally in Adani shares, with major asset managers in Japan increasing disclosure regarding funds with exposure to Adani and MSCI Inc. announcing on Wednesday that it will review the eligibility of some Adani securities for inclusion in its widely followed benchmark indexes.

A spokesperson for Adani stated that the conglomerate had discussed refinancing a portion of the loan with banks, but that the company intended to prepay it. According to the spokesperson, talks with the banks have not stopped.

Barclays and Deutsche Bank representatives declined to comment. Standard Chartered representatives were unavailable immediately.

This is the second time in a week that the company has taken action to prepay debt in an effort to regain investor confidence and halt the stock market collapse. The group announced on Monday that billionaire Gautam Adani and his family have paid off shares-backed borrowings totaling $1.11 billion.

While it is encouraging that the group is able to fulfill these obligations, it also highlights the difficulties of refinancing Adani securities due to the increase in yields on the debt following the Hindenburg report. The repayments also raise questions about how much additional cash the business has available for debt repayment without refinancing.

Following the Hindenburg report, international banks are intensifying their scrutiny of the group. Following a similar move by Credit Suisse Group AG, Citigroup Inc.'s wealth arm has stopped accepting Adani securities as collateral for margin loans.

The Hindenburg report on alleged malpractices has sent Adani's corporate empire into a tailspin. Adani was once the second-richest person in the world. The selloff saw the combined market values of ten Adani group companies, including Adani Total Gas Ltd., Adani Enterprises Ltd., and Adani Transmission Ltd., reduced by more than $100 billion at one point.

Hindenburg said that a web of offshore shell companies in tax havens controlled by the Adani family were used to help with corruption, money laundering, and theft from taxpayers. The conglomerate has threatened legal action and referred to the report as "bogus." Last week, Adani said in a video speech that the group's balance sheet is healthy.

Following the debt payment and traders covering short positions, Adani Group shares have risen this week. In the session on Wednesday, seven of the group's ten stocks were up, with flagship Adani Enterprises rising 20% after soaring to levels not seen since 2020 the day before. Since the low it reached during the most recent selloff, the stock has more than doubled.

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