Gautam Adani’s artistry

In the first week of March this year, senior Bharatiya Janata Party leader Subramanian Swamy had called industrialist Gautam Adani the “biggest NPA [non-performing asset] trapeze artiste… It is time he is made accountable or a PIL [public interest litigation] is inevitable.” Now hell hath no fury like Swamy enraged, so something has changed: either somebody has made Adani accountable, or he has mended his ways, or friends in high places have come to his rescue. The fact, however, is that he seems to have brought down debts in his once highly leveraged companies.

Consider this: Adani Power’s long- and short-term borrowings came down to Rs 9,532 crore on March 31, 2018, from Rs 25,274 crore on March 31, 2017. The total current and non-current liabilities were Rs 10,163 crore and Rs 37,084 crore on the corresponding dates.

But, not long ago, the situation was bad. Adani Power’s interest coverage ratio (ICR), which measures a company’s short-term financial help, was bad, and worsening, till some time ago. It was 1.1 in the third quarter of FY 2016, coming down to 0.9 in Q2FY2017, further coming down to 0.7 in Q3FY2017.

“Essentially, the interest coverage ratio measures how many times over a company could pay its current interest payment with its available earnings,” explains www.investopedia.com. “In other words, it measures the margin of safety a company has for paying interest during a given period, which a company needs in order to survive future (and perhaps unforeseeable) any financial hardship that may arise. A company’s ability to meet its interest obligations is an aspect of a company’s solvency, and is thus a very important factor in the return for shareholders.”

ICR is reached by dividing the interest charge from the earnings before interest and tax or EBIT. Therefore, the lower a company’s ICR is, the more its debt expenses burden the company. When a company’s ICR is 1.5 or lower, its ability to meet interest expenses may be questionable, says www.investopedia.com, adding that “1.5 is generally considered to be a bare minimum acceptable ratio for a company and the tipping point below which lenders will likely refuse to lend the company more money, as the company’s risk for default may be perceived as too high.”

This was the reason that a February 2017 report by Credit Suise included Adani Power in its “Hall of Debt” companies. The ‘Hall’ also included three other group firms—Adani Ports & SEZ, Adani Enterprises, and Adani Transmission.

It may be mentioned here that the Adani Group had denied Swamy’s allegations, claiming that “it has a history of implementing world-scale infrastructure projects within a short time and the lowest cost quartile. Capital intensive projects necessarily require debt capital.”

It went on to assert: “Our operating performance is such that the Transmission and Port businesses have been rated ‘investment grade’ by international credit rating agencies. Also, almost all of our companies enjoy a high credit rating from domestic rating agencies. This is a testimony to the extremely high discipline followed by the Group, in meeting with its debt obligations-diligently and on an on-going basis.”

The group claimed that it was because of “our rating track record” that different sources of debt are available, ranging from international bonds, ECB loans, domestic bonds, loans from private and public sector banks in India. Speaking to me, an Adani Group representative said that it has not NPAs.

It is, however, indisputable that it has been a debt-ridden group. In its 37th report in March this year, the Standing Committee on Energy focused on ‘Stressed/Non-performing Assets in Electricity Sector.’ It did include the group in its list.

But there doesn’t seem to be any stress in the Adani Group. Even in the wake of the Allahabad High Court verdict, denying any relief to the power sector from the Reserve Bank of India’s February 12 circular setting a 180-day deadline for resolution, which ended on August 27. While other power companies are worried, Adani Power is about to acquire a 1,370-megawatt thermal power plant promoted by GMR Infrastructure Ltd. It will cost the company a sum in excess of Rs 5,000 crore.

Another group company, Adani Transmission, has already completed the Rs 18,800-crore deal with Anil Ambani-backed Reliance Infrastructure, thus bagging the Mumbai energy business. By the way, Anil Ambani also heads a debt-ridden group; by this sale, he intends to bring down the borrowing burden.

After some time, Adani may follow suit and sell off some of his firms. At present, however, he seems to be going strong. After all, there are so many public sector banks. And then there are friends in the quarters that matter.