Gautam Adani’s conglomerate has halved its revenue growth target and plans to delay new capital expenditures, according to people familiar with the matter, as the Indian billionaire seeks to rebuild investor confidence in the wake of a short-selling attack.
The group will now target revenue growth of 15% to 20% for at least the next financial year, below the 40% expansion originally targeted, said the people, who declined to be named as discussions are private. Capital spending plans will also be scaled back, they said, as the group prioritizes bolstering its overly aggressive expansion of financial health.
Most of the group’s shares fell at Monday’s open, with Adani Green Energy Ltd., Adani Total Gas Ltd., and Adani Transmission Ltd. all below the 5% limit.
The change in policy shows how the ports-to-energy conglomerate is focused on conserving cash, paying off debt, and recovering committed shares as it struggles to undo the damage of a scathing report by Hindenburg Research on Jan. 24. Even though Adani Group denied allegations of accounting fraud and stock manipulation imposed by the American short seller, the scandal triggered a stock crash that has wiped more than $120 billion off the market value of the Adani Empire.
Withholding investments for even as little as three months could save the conglomerate up to $3 billion, funds that can be deployed to pay off debt or increase cash accumulation, another person said.
The group’s plans are still being reviewed and will be finalized in the coming weeks, the people said.
A representative for the Adani Group did not immediately respond to an email seeking comment on its plan to cut the revenue target and delay capital expenditures.
‘Inter-Linkages’
“The scale and economic interrelationships of Adani’s businesses make it relevant to discuss what any pullback in the group’s investments could imply for the economy as a whole,” Barclays Plc analysts led by Avanti Save wrote in a Feb. 10 report. “A disruptive outcome of the situation or a sharp pullback in the group’s investments could have implications for India’s capital spending cycle.”
Chief Financial Officer Jugeshinder Singh told a local newspaper last month that the Adani group could cut capital expenditures as Adani’s flagship firm was underway a follow-on share sale by Adani’s flagship firm amid Hindenburg’s allegations.
If the follow-up offer is not subscribed, “we will postpone the growth program from six to nine months and then we will do it later,” Singh told The Hindu Businessline in an interview published on Jan. 29. The sale was scrapped three days later, amid pressure from investors.
The withdrawal is a marked shift for a tycoon who was on a rapid — and indebted — wave of expansion in recent years and reflects the significant impact the Hindenburg assault has had on the conglomerate.
The first-generation entrepreneur, who started with an agricultural trading company in the 1980s, quickly built an empire that now encompasses ports, airports, coal mines, power plants, and utilities. In recent years, it dabbled in green energy, cement, media, data centers, and real estate, assuming considerable influence in a way that has spooked some credit watchers.
Assuage Concerns
In the days since the stock market crash triggered by Hindenburg, Adani and its companies have been working to calm the concerns of investors and lenders.
On Feb. 1, flagship company Adani Enterprises Ltd. abruptly shelved the follow-up $2.5 billion stock offering, even though it was fully subscribed the day before, as the tycoon sought to avoid embarrassing market losses for his investors amid the relentless stock sell-off. A couple of days later, the company canceled a retail bond sale.
The Adani Group has focused on avoiding worries about its financial health and shoring up sentiment.
On Feb. 6, the group said Adani and his family repaid $1.11 billion in advance loans to release committed shares in three firms, while the ports unit announced plans on Feb. 8 to repay the debt of 50 billion rupees in the year starting in April to boost a key credit metric.
The conglomerate plans to prepay off a $500 million bridge loan due next month after some banks refused to refinance the debt, Bloomberg News reported Wednesday citing people familiar with the discussions. It was part of fundraising last year to finance the acquisition of Holcim Ltd.’s cement assets in India.
Big Four Auditor
Adani Group plans to hire a Big Four auditor to “conduct a comprehensive audit,” French energy giant TotalEnergies SE said in a statement earlier this month describing its investments in India. This will help address some of the red flags raised by Hindenburg.
The Indian conglomerate has hired public relations firm Kekst CNC as its global communications adviser, Bloomberg News reported Saturday, citing people familiar with the matter. Kekst, according to its website, has been involved in high-profile litigation matters, “working against some of the most aggressive counterparties.”
Attempts to calm investors’ nerves helped rally stocks early last week, but headwinds remain strong.
The stock sell-off resumed after MSCI Inc. reduced the number of shares it considers freely tradable for four of the companies, a move that will result in lower weightings in its indices. Moody’s Investors Service on Friday cut its outlook for Adani Green Energy Ltd. and three other group companies, citing falling shares.
More shares in three Adani Group companies were promised, SBICaps Trustee said in a notice to Indian exchanges late Friday, “to the benefit of lenders” of Adani Enterprises.
Source: Bloomberg
