LENDERS TO the ports-to-energy conglomerate Adani Group have started assessing their exposure of over Rs 2 lakh crore to the different businesses of the group in order to take necessary steps, if required, following the release of a research report by US-based short seller Hindenburg Research on Adani, accusing it of “brazen stock manipulation and accounting fraud”, and the crash in the group’s listed companies. According to the State Bank of India, the country’s largest lender, as the bank’s exposure to the Adani Group is well below the Large Exposure Framework (LEF) of the RBI and is secured by cash generating assets with adequate TRA (trust and retention account)/ escrow mechanism in place, debt service will not be a challenge. “We are looking into it. We are very cognizant of market developments. Whenever events that can affect our exposures take place, we have a process in place to evaluate current exposure to that particular company and take some remedial measures,” said an official of a government-owned bank who did not want to be named. “We are definitely going to look at our exposure (to Adani Group) and see how secure we are and what kind of impact it may have. It may be premature to allude to something right now, but we are watching the situation closely,” the official said. “Coming to SBI, we keep reviewing the non-funded exposures to all large entities periodically, and there is no concern or likelihood of any devolvement at this juncture. The bank, as a matter of policy, keeps a watch on all its exposures to large groups and will take measures from time to time on the basis of its assessment,” said Swaminathan J, managing director (corporate banking & subsidiaries), SBI. He said the Indian banking system’s exposure to the group as a percentage to their total debt has been declining over the last two-three years. During the same period, their debt to EBITDA (earnings before interest, taxes, depreciation, and amortisation) also has been getting better, which helps the group to service its obligations comfortably. “As is known, most of their acquisitions have been financed through overseas borrowings and market instruments, hence there is no exposure built up to the Indian banking system on this count,” Swaminathan said. According to a report by investment firm CLSA, the top-five Adani Group companies – Adani Enterprises, Adani Ports, Adani Power, Adani Green and Adani Transmission – have a consolidated debt of Rs 2.1 lakh crore. Indian banks' exposure is less than 40 per cent of the total group debt. Within this, private banks’ exposure is below 10 per cent of the total group debt. The CLSA report estimates that banking exposure to Adani Group is 0.55 per cent of system loans, as bank debt stands at less than 40 per cent of total group borrowing. Within this, PSU banks’ exposure as a share of their loans is 0.7 per cent, with the figures for some banks potentially at more than 1 per cent of loans, while for private banks the exposure is 0.3 per cent of loans, CLSA said. “For a bank, market movement does matter, but what may be even more important is how the company's financials are and how its conduct is. So far, their financials (of Adani Group companies) have been good. It is a big and noteworthy event for everyone connected with the group. All of us are keenly watching it as it unfolds,” said another banking source. “Whenever we sanction loans or take certain exposure to a big corporate, we do a lot of due diligence. We calculate the company’s future performance based on certain models. So, irrespective of their market performance, the large focus is on how strong the cash flows are, what kind of promoter backing the company has, and what kind of bearing any kind of external eventualities can have,” he said. On January 24, the 106-page Hindenburg Research report, which was released a day before the opening up of the Rs 20,000 crore follow-on public offer (FPO) of Adani Enterprises Ltd (AEL) for anchor investors, also flagged concerns over the group’s high leverage. The Adani Group, however, termed the report as “maliciously mischievous”. It also threatened legal action against the research firm. Following the release of the report, Adani Group stocks saw a massive sell-off. Over the last two trading sessions, on Wednesday and Friday, ten listed Adani companies lost Rs 4.17 lakh crore in market cap. The 20 per cent fall in share prices of Adani companies on Friday also affected banking stocks. “The carnage in the Adani Group stocks cascaded across the board, and the banking sector faced the maximum pressure,” said Ajit Mishra, VP, Technical Research, Religare Broking Ltd. SBI shares fell 5 per cent in the bloodbath that hit the sentiment ahead of the Union Budget on February 1. Bankers said if the FPO is not successful, there could be delay in some projects where the proceeds were to be deployed. This may be a cause of concern for lenders with exposure to these under-implementation projects. Amid massive sell-off in the Adani Group stocks, the AEL’s FPO received bids for just 4.7 lakh shares, or 1 per cent, of the issue size of 4.55 crore shares on January 27. According to the red herring prospectus, AEL has proposed to invest Rs 10,869 crore in capital expenditure for green hydrogen system, airports and construction of greenfield expressway. The group has won the right to own, maintain, develop Navi Mumbai International Airport, a greenfield airport. It is also constructing a six-lane greenfield expressway from Unnao to Prayagraj, the Ganga Expressway, in Uttar Pradesh.
