Global bond analytics firm CreditSights, which had earlier red-flagged Adani Group’s ‘leveraged’ capital structure, Thursday acknowledged calculation errors in two key group entities and put out a revised note to reflect the conglomerate’s progressive reduction in debt-to-operating profit ratios and systemic capital management plans.
“In a follow-up to our report outlining our credit concerns with Adani Group companies, we are presenting this piece to reconcile our calculations with Adani Group’s presentation,” CreditSights said in a report Thursday. “We discovered calculation errors we had made in two of the Adani Group companies – Adani Transmission and Adani Power.”
In the new note published by Credit Sights, qualitative profile descriptors such as ‘deeply overleveraged’ have been omitted.
Adani Group stocks have been multibaggers over the past two years, with the scrips of four listed entities surging more than ten times, helping promoter Gautam Adani rank third on the latest global list of Bloomberg billionaires.
The Adani Group is said to have reached out to CreditSights, highlighting its systemic capital management plan, improved net debt to operating profit ratio and a diversified borrowing book to allay concerns of mounting debt, ET reported Monday.
For Adani Transmission, the global research firm corrected Earnings Before Interest taxes depreciation and amortization (EBITDA), or operating profit, estimates to Rs 5,200 crore from Rs 4,200 crore. For Adani Power, it has revised gross debt estimates to Rs 48,900 crore from Rs 58,200 crore. To be sure, these corrections did not change CreditSights’ investment recommendations.
“As for Adani Green Energy (AGEL), we feel the company’s expansion, through both organic and inorganic means, has led its leverage to be elevated,” said the research firm. “The differences between the management’s and our EBITDA calculations also stem from the management’s inclusion of interest income.”
The Adani management said that interest income generated on various cash reserves should be added to the total EBITDA of the various Adani entities.
Such reserves include the mandatory maintenance capex reserve and liquidity reserves, which the Adani management said is maintained at 1.25x-1.5x of future 12-month commitments – over and beyond balances required for other reserves.
“We acknowledge the management’s viewpoint that interest income is typically added for infrastructure companies,” CreditSights said in its revised assessment.
Analysts from CreditSights met Adani Group’s Chief Finance Officer Jugeshinder Singh, popularly known as Robbie Singh, head of corporate finance Anupam Misra, and head of ratings Rahul Kumar.
The Adani management highlighted singular factors, such as cash waterfall structures for infrastructure borrowings, run-rate EBITDA and sponsor affiliate debt, elements it believes investors must take into consideration when analyzing the group’s credit profile.
Run rate EBITDA is computed by adding “annualized EBITDA for assets commissioned after the start of the fiscal year” to each company’s operating EBITDA. By using run rate EBITDA to compute the group’s leverage metrics, the management believes it presents a fairer view of the company’s debt servicing ability.