Adani Group's Shift: Embracing Domestic Funding Amidst Global Uncertainties

August 28, 2024, 6:49 pm
State Bank of India
Location: India, Maharashtra, Mumbai Metropolitan Region
The Adani Group is navigating a new financial landscape. Once heavily reliant on international borrowing, the conglomerate is now pivoting towards domestic banks for its funding needs. This shift is not just a strategic maneuver; it reflects a broader trend in India's financial ecosystem.

In the fiscal year 2024, the Adani Group's domestic long-term debt surged to ₹75,877 crore, a significant leap from ₹59,250 crore in FY23. This increase marks a rise from 29% to 36% of the group's total debt. The total debt ballooned to ₹2.4 lakh crore, up from ₹2.27 lakh crore the previous year. This is a clear signal: the group is prioritizing local financial support.

The group’s creditworthiness has improved, making it an attractive option for Indian banks. Major state-owned lenders like the State Bank of India, REC, and Bank of Baroda are stepping up their exposure. Private banks such as ICICI Bank and HDFC Bank are also in the mix. The Adani Group's financial narrative is changing, and domestic banks are eager to be part of it.

International banks still hold a 26% stake in the group's total debt. However, much of this is tied to the acquisition of Ambuja Cements and ACC in 2022. The global financial landscape is shifting, and the Adani Group is adapting. The upgrades in credit ratings from various agencies have bolstered confidence. Adani Ports even received its first ‘AAA’ rating from ICRA, a significant milestone.

Cash reserves are another feather in the Adani cap. The group boasts a cash balance of ₹59,791 crore, up from ₹40,268 crore in FY23. This liquidity provides a safety net, covering over 30 months of debt servicing. The financial health of the group is not just about numbers; it’s about resilience.

In FY24, the funds from operations reached $6.2 billion, translating to a 22% conversion rate from revenue. This is a testament to the group's operational efficiency. The Adani Group is not just surviving; it is thriving. The shift towards domestic funding is a strategic response to global uncertainties and high-cost overseas borrowings.

The Adani Group has traditionally leaned on overseas bonds. However, recent moves indicate a shift in strategy. The group is tapping into domestic bond and equity markets. Adani Enterprises recently launched an ₹800 crore NCD issue and is poised to raise around $2 billion through an institutional placement of equity. This diversification of funding sources is a smart play in an unpredictable market.

Moreover, the promoters are actively managing their stakes. A recent sale of a 2.8% stake in Ambuja Cements raised over ₹4,200 crore. This move not only strengthens liquidity but also signals confidence in the group's future. More stake sales are on the horizon, hinting at a proactive approach to capital management.

As the Adani Group shifts its focus, it mirrors a larger trend in the Indian economy. Domestic banks are becoming more willing to lend, driven by improved credit ratings and a growing appetite for risk. This is a win-win situation. The Adani Group secures funding at lower costs, while banks expand their portfolios with a promising client.

The landscape for Micro, Small, and Medium Enterprises (MSMEs) is also evolving. Banks are collaborating with tech firms like Nucleus Software to develop new credit assessment models. This initiative aims to enhance the creditworthiness evaluation of MSMEs, moving beyond traditional asset-based criteria. By leveraging digital footprints, banks can better assess the viability of these businesses.

The new model is expected to revolutionize how MSMEs access credit. It aligns with the government’s push for financial inclusion and support for small businesses. As banks build in-house capabilities, they are not just responding to policy changes; they are anticipating the future of lending.

Nucleus Software is at the forefront of this transformation. With over three decades of experience, the company is focused on enhancing its international operations. Currently, 45% of its revenue comes from abroad, with aspirations to increase this to 70% in the next three years. This ambition reflects a growing recognition of the global market's potential.

In conclusion, the Adani Group's shift towards domestic funding is a strategic response to a changing financial landscape. It highlights the resilience of Indian businesses in the face of global uncertainties. As domestic banks step up their lending, the Adani Group is poised for growth. Meanwhile, the evolution of credit assessment models for MSMEs signals a broader commitment to financial inclusion. The future is bright, and the landscape is ripe for innovation.