Huge debt and excessive leverage raise concerns

India’s Adani Group has funded its recent aggressive expansion largely through debt financing, putting pressure on its credit metrics and cash flow, according to a report by independent credit research firm CreditSights.

The group’s excessive leverage and over-leverage could have a cascading negative effect on the credit quality of bond-issuing entities within the group and increase the risk of contagion should an entity fall into difficulty, CreditSights said, which belongs to the Fitch group.

The Adani Group is increasingly venturing into new and/or unrelated businesses, which are capital-intensive and raise concerns that execution oversight is too thinly spread, analysts said.

Adani Group is the third largest conglomerate (after Reliance Industries and Tata Group) in India based on a total market capitalization of over $200 billion as of August 18, 2022.

Strong potential competition with Reliance Industries (RIL) for market dominance could lead the group to take rash financial decisions. RIL, who has been on a

deleveraging trend in recent years, benefits from robust credit measures.

The company is also exposed to “moderate levels of governance and ESG risks”.

“However, there are favorable policies for the development of these infrastructure assets, and note that founder Gautam Adani has a strong relationship with the ruling Modi administration,” the report said.

“Overall, we remain cautious about the Group’s growing appetite for expansion, which is largely financed by debt.”

(Writing by Brinda Darasha; editing by Seban Scaria)

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