Home Energy assets Gautam Adani takes new tycoon risk to the next level

Gautam Adani takes new tycoon risk to the next level


Indian billionaire Gautam Adani addresses delegates during the Bengal Global Business Summit in Kolkata, India April 20, 2022. REUTERS/Rupak of Chowdhuri – RC2WQT9C8YGF

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MUMBAI, Aug 9 (Reuters Breakingviews) – Gautam Adani is a different kind of Indian tycoon. The 60-year-old college dropout and son of a trader is a first-generation entrepreneur who became the world’s fourth-richest man by building and buying up critical energy and infrastructure assets at lightning speed. There’s none of the obvious financial debauchery that has shattered many of his rivals in recent years, but other concerns cast a shadow over the billionaire who is starting to get too big to fail.

At some $220 billion, the combined market value of the seven listed companies in the Adani group, which all bear the name of the industrialist, has increased tenfold in three years. Gautam Adani leads as chairman and is flanked by his wife, brother, two sons and a few nephews in various roles. The family’s power rests on large stakes of up to 75%, including in flagship Adani Enterprises (ADEL.NS) which houses data centers, roads and airports and incubates new projects.

Growth is both organic and fueled by acquisitions. A $10.5 billion deal in May for the Indian unit of Holcim (HOLN.S) makes the group the country’s second-largest cement maker. It operates seven airports, all but one clawed back through government privatizations since 2019. These build on Adani’s existing quasi-duopoly alongside the state in ports and power transmission. After a big buy from SoftBank Group (9984.T) read more, Adani also has the nation’s largest portfolio of existing and under-construction renewable energy assets.

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The tycoon’s animal spirits lurk in otherwise tamed industrial nature. Eight of the 10 Indian business groups covered by Credit Suisse’s infamous “House of Debt” series (CSGN.S) released a decade ago ran into serious financial difficulties after then-central bank governor Raghuram Rajan , launched a review of bank assets in 2015. quality. Some peers such as the Ruia brothers of Essar were stripped of their trumps. Only one of this notorious club, Gautam Adani, is still borrowing at a rapid pace. Even India’s other richest man, second-generation industrialist Mukesh Ambani, was aiming for net debt zero for Reliance Industries (RELI.NS) after watching rivals, including his brother Anil Ambanisink.

Adani’s group didn’t go that far but they got out of debt. While the amount borrowed by listed companies has more than tripled to 2.3 trillion rupees ($30 billion) over the past decade, overall net debt has fallen to around 4 times EBITDA. It has also diversified its sources of financing, reducing its dependence on state banks and extending the time available to repay its debts: 50% of the debt is made up of capital market instruments and the repayments s extend from 2026 to 2046. Most of the group’s activities, with the exception of property and loans, are captured by listed entities where credit rating agencies see few obvious signs of weakness: Adani buys assets cash generators and its bidding behavior for contracts or acquisitions is not considered aggressive.

On the contrary, the Indian tycoon is going the extra mile to win over debt investors. Buyout firm Apollo Global Management (APO.N), for example, announced in May that it was buying Adani’s entire $750 million investment in Mumbai International Airport. Strategic backers are also joining us: France’s TotalEnergies (TTEF.PA) acquired 20% of Adani Green Energy (ADNA.NS) last year in a $2.5 billion deal. dollars, and Abu Dhabi International Holding Company in May injected around $2 billion into three Adani companies including Adani Transmission (ADAI.NS).

However, the attractiveness of the Adani group has limits. A good number of clients of major Indian institutions and Wall Street are keeping their distance partly due to attractive valuations: Adani’s four largest companies by market capitalization are trading between 260 and 725 times earnings, according to Refinitiv data. , and also look expensive on other metrics against peers, including Goldman Sachs (GS.N)-backed Renew Energy (RNW.O). TotalEnergies only made its deal after securing a discount of around 40% off the quoted price.

The exorbitant prices are probably a turnoff for regular fund managers as well. The group attracts some of the usual suspects solely because of its combined 5% weighting of its listed companies in the MSCI India index, but Adani Enterprises only attracted 132 institutions and funds, excluding strategic entities, in the over the past year, compared to 468 for Reliance. , Refinitiv data show. Brokerages aren’t paying attention either: Refinitiv, for example, doesn’t show any earnings estimates on its data portal for three Adani companies worth more than $100 billion combined. This is unusual for large entities.

However, the lack of appreciation is not one-sided either. A spokesperson for Adani Group says it has not courted analysts because it typically only sells shares when seeking strategic investors. The group expects analyst coverage of its companies to increase in the coming years as it enters the next phase of its growth. This might help address other concerns.

One is a perceived key man risk stemming from Adani’s closeness to the government. Like Ambani, Adani hails from Prime Minister Narendra Modi’s home state of Gujarat, long considered the home of India’s most astute businessmen. The two tycoons have aligned their ambitions with those of the country’s infrastructure and energy needs. Political change will present itself as a test whenever it happens, even though the group is already operating in different states ruled by different ruling parties and coalitions. Investors are less worried about the success of Ambani’s Reliance, as they have seen it thrive for many decades.

A bigger concern is a most cited complaint among analysts and fund managers: that the value of its closely held companies has been inflated by opaque Mauritius-based funds. After the group’s shares fell in 2021, a government minister, in a written response to parliament, revealed that the securities regulator was investigating some Adani companies without providing further details. Such probes can last for years and quietly die out. For his part, Adani says the regulator continues to approve all of his proposals. Whatever the merits, such reputational concerns could hamper Adani’s ability to rally external support if leverage or access to capital becomes an issue.

All of this creates a potential headache for New Delhi as Adani ventures deeper into the economy. His success also counts for the rich countries who rely on him to deploy ambitious projects to help India meet its climate commitments. India’s needs are crying out for financially prudent infrastructure tycoons. The relentless rise, however, of a holder of such large assets, which makes many investors nervous, is almost as unnerving as one with too much debt.

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Editing by Antony Currie and Katrina Hamlin

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