Adani Group News: Can Adani convince investors to back his capital-hungry businesses?

As shares of Gautam Adani’s conglomerate recover from an epic rout, the big question looming over the Indian tycoon is whether he can convince investors and lenders to back his capital-hungry businesses with fresh cash.

India’s largest private utility is a key player in Modi’s pledge to provide power to every Indian home. In a media blitz on Monday, it touted itself as capable of “distributing electricity to every corner of the country.” 

The funding needs of infrastructure builders like Adani Transmission are a major factor behind the conglomerate’s race to return to business as usual, after months of damage control and denying US short seller Hindenburg Research’s allegations of widespread corporate malfeasance. The stakes are also high for Modi, who faces national elections in early 2024 and has made infrastructure a core plank of his nation-building agenda.

Of these, 13 projects are currently underway, but many face delays or cost overruns, including the largest one: the Warora-Kurnool Transmission line that runs through three large southern Indian states.

The utility company earlier this month announced plans to raise as much as $1 billion — one of two Adani companies looking to issue new shares for the first time since the short seller crisis which wiped more than $100 billion off the empire’s market value. 

“It might have to also raise additional debt to finance their capex requirements as the transmission business has high working capital needs,’ he said.

India Ratings revised its outlook on Adani Transmission to “negative” to reflect this uncertainty around debt funding secured for the under-construction transmission lines. Any shortfall will require the company to invest more “to meet project completion deadlines, potentially creating cashflow mismatches over FY24,” it said.

‘Best Possible Assets’

GQG Partners’s Chief Investment Officer Rajiv Jain, one of the first investors to show support for the conglomerate after the Hindenburg attack, told Bloomberg last week that GQG had raised its investment in the Adani empire and its holdings were now worth $3.5 billion. 

Very few private sector firms in India have the risk appetite and ability to withstand the vagaries of infrastructure development in the sprawling, unwieldy country like Adani does.

Its largest project by length, Warora-Kurnool Transmission line, or WKTL, is facing a cost-overrun worth 6.7 billion rupees due to higher input and execution costs, India Ratings said at the end of March. The company “management confirmed that it will fully support the project to fund the entire cost-overrun,” it said in the statement.

Eight Adani transmission lines are expected to be operational by March 2024 after some delay, according to data compiled by Bloomberg from company presentations and government websites. 

The Adani Group’s effort to revert to pre-Hindenburg growth is gaining momentum from recent developments.

It’s another example of the company’s ability to navigate the difficulties of infrastructure building in India, as utilities generally cannot recoup higher costs incurred during project execution from end users as electricity tariffs are fixed through auctions. They need to petition the central or state regulator to approve higher tariffs, which usually involves a lengthy legal process.