Israeli lenders relaxed about Adani’s troubles

Three weeks after publication of the research attacking the businesses of Adani Group, which controls Haifa Port, in which share manipulation and accountancy fraud were alleged, the Indian Group’s stocks have stabilized. After losing about 50% of its value (about $100 billion), since publication of the report by Hindenburg Research, some of the stocks have recovered and jumped on the Mumbai Stock Exchange yesterday.

Meanwhile it is becoming clear that at least on the Israel front, financial institutions exposed to the Adani Group’s businesses are not concerned about the potential worsening of the situation. The financing is from a consortium led by Mizrahi Tefahot Bank, and including Meitav Investment House and First International Bank of Israel (TASE:FTIN1; FTIN5), which agreed last November to extend credit of more than NIS 1 billion for the acquisition of Haifa Port, to a group comprising Adani Ports (70%) and Israeli company Gadot Group, led by Tene investment Funds.

Adani and Gadot won the privatization tender for Haifa port with a bid of NIS 3.9 billion – a deal which was completed at the beginning of January 2023 and built on the group injecting NIS 1 billion in their own equity and the balance from credit.

Out of the credit for the purchase, the Adani Group itself provided a loan of NIS 1.7 billion. The balance was taken from the Israeli financial bodies in a “bolt” loan (where the principal is paid at the end of the period) of NIS 1.1 billion over three years, with a high interest rate of 8%.

There is a lien on Haifa Port itself, against the credit provided by the Israeli institutions, with a loan to collateral value (LTV) ratio of about 25%. This is a low leverage ratio, which in an extreme scenario where affairs concerning Adani Group reach the point of insolvency, leaves the Israeli lenders “on safe ground.”

“The short-term credit was taken to complete the deal on time,” a market source familiar with the details told “Globes.” “Adani surprised when it proposed extending the credit itself, which in practice is inferior to that provided by the banks.”

Huge understanding in the field of shipping and logistics

The work plan of the Haifa Port buyers is to refinance the credit under more favorable terms, in three years. Although they can apparently distribute dividends during this period, as a result of profits accumulated from the port’s operations after the purchase transaction, they do not intend to do so.

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In an extreme scenario in which the Adani Group is forced to relinquish its holdings in Haifa Port, any other owner replacing it will have to obtain ownership approval from the state. Moreover, a violation of clauses in the “Decree of Interests” signed by the group that bought the port from the state, allows the state to act unilaterally to find a new owner.

From the Israeli point of view, says a source, the impact of the affairs that have effected Adani’s public companies is not being felt at the moment. “Adani Group’s contribution to the daily activities of Haifa Port is enormous,” the source says. “In recent months, they are starting to divert shipping lines to Haifa Port. Their understanding of shipping and logistics is huge.”

“No more than a lie from the Madoffs of Manhattan”

Gautam Adani (60), who heads the Adani Group, is one of the world’s wealthiest people but since publication of the Hindenburg Research report his fortune has shrunk from $110 billion to $64 billion, according to “Bloomberg,” and he is no longer the richest person in Asia.

Adani Group operates in a range of areas including infrastructures, industry, ports and energy through seven publicly-traded companies. Adani Group denies the serious claims against it made last month by Hindenburg, an investment research company that specializes in short selling. Adani Group dismissed the claims as, “nothing more than a lie by the Madoffs of Manhattan.” But the rebuttal failed to reassure investors.

In terms of market cap, the biggest company in the Adani Group is Adani Enterprises with a market cap of about $30 billion, followed by Adani Total Gas with a market cap of about $20 billion. Adani Ports, which owns Haifa Port, has a market cap of about $16 billion, after falling 30% following publication of the Hindenburg Research report.

Adani-Gadot Group said, “The port company is a strong company with a high AA rating, and has no debts with a high cash balance.

The banking debt of the group itself is very sound and against assets worth four times the amount.”

Published by Globes, Israel business news – en.globes.co.il – on February 9, 2023.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.