Global brokerage firms CLSA and Jefferies do not see a material risk to Indian banks due to their exposure to the Adani Group debt which has doubled in the last three years.
A report by Hindenburg Research has claimed that Adani Group had participated in a clear stock manipulation and accounting fraud scheme over decades following which, the group companies' stocks fell sharply and Gautam Adani's net-worth declined by $7 billion.
In a report on January 26, CLSA said, “Indian banking exposure is less than 40 percent of total group debt. Within this, private banks’ exposure is below 10 percent of total group debt and most banks (including ICICI/Axis) have indicated that they have largely financed assets with strong cashflows, such as airports/ports.”
CLSA added that PSU banks do have material exposure (30 percent of group debt) but this debt has not increased in the past three years. Most of the incremental funding to the group for new businesses and acquisitions has come via overseas sources.
"The ballpark exposure of private banks is 0.3 percent of FY24 loans and 1.5 percent of FY24 net-worth. For PSU banks, the exposure is 0.7 percent of FY24 loans and 6 percent of FY24 net-worth," said CLSA.
CLSA pointed out that while Adani Group's debt levels doubled from ₹1 lakh crore to ₹2 lakh crore in the past three years, the overall bank debt increased by more than 25 percent.
CLSA added that the share of bank debt in overall group debt has reduced materially and incrementally banks have only lent ₹15000 crore, or 15 percent of the ₹1 lakh crore the group companies have borrowed over the past three years. Large acquisitions, such as those of cement firms ACC and Ambuja, have been fully funded by foreign banks.
On similar lines, Jefferies said Indian banks' exposure to the Adani Group is manageable.
As Mint reported, Jefferies highlighted that the group's debt accounts for 0.5 percent of total loans across the Indian banking sector.
“Following recent concerns, Adani Group has shared details of debit and leverage levels. Consolidated debt is at ₹1.6 lakh crore (ex-shareholder sub-debt) and debt/EBITDA is down from 4.3 times in FY16 to 3.2 times in FY22. The acquisition of the cement business may add nearly ₹60,000 crore to debt, but also lift cash flow. Diversification of the borrowing mix has cut the share of Indian banks," Mint quoted Jefferies as saying.
Meanwhile, the Adani Group said it is considering legal action against Hindenburg Research.
The company said that it was shocked that Hindenburg Research has published a report without making any attempt to contact it or verify the “factual matrix”.
Disclaimer: The views and recommendations given in this article are those of the broking firms. These do not represent the views of MintGenie.