Asia’s richest man bet $5 billion to silence debt-obsessed critics

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dated: 2022-11-25 02:35:16 .

(Bloomberg) — Gautam Adani’s plan to raise at least $5 billion in equity capital aims to address two of the most common criticisms of the Indian tycoon’s growing empire: high debt rates and a limited investor base.

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After four years of incredible earnings – some Adani Group shares have soared more than 2,000% – Asia’s richest man is embarking on a fundraising drive that is likely to include local share sales as well as takeovers by big mutual funds in the Middle East and Canada. . A capital injection of this size is expected to help the conglomerate to strengthen, and Bloomberg Intelligence sees a successful group-wide capital increase supporting dollar-denominated corporate bonds.

The billionaire is seeking legitimacy amid questions about his group’s breakneck expansion from a traditional port operator into a sprawling empire with assets including media, cement and green energy that critics say has increased influence and financial complexity. With this capital increase, Adani can, in one fell swoop, improve leverage ratios, broaden its investor base, improve stock liquidity and encourage broader analyst coverage for a conglomerate that is surprisingly undervalued despite huge stock gains.

“Adani Group’s fundraising puts skeptics in a position,” said Sanjiv Bhasin, director of Mumbai-based brokerage IIFL Securities Ltd. “He is launching a new fundraising campaign that will increase the group’s credibility and allay investor fears.”

However, the question remains what kind of investors Adani can attract and whether they can be persuaded to buy the astronomical valuations at which its units are trading. The Adani Group declined to comment.

“Many questions”

Adani executives are courting global sovereign wealth and pension funds, including Mubadala Investment Co., the Abu Dhabi Investment Authority and the Canada Pension Plan Investment Board, Bloomberg reported Wednesday. The total fundraising could be as high as $10 billion, people familiar with Adani’s thinking said.

The stock plans come as the 60-year-old looks to reinvent himself on the global stage. Although Adani has added more billions to his wealth than any other tycoon this year, he is struggling to shake the impression that his meteoric rise was fueled by support for Indian Prime Minister Narendra Modi. Research firm CreditSights put the spotlight on the group’s “increasing” leverage in September, and lawmakers have called for an investigation into some of the group’s investors.

“There are many questions about opacity, lack of disclosures and obvious assessments. But it is more difficult because as India grows, so will the companies,” said Vikas Pershad, fund manager at M&G Investments (Singapore) Pte. “You are in the right place at the right time.”

The board of directors of the flagship company, Adani Enterprises Ltd., is meeting on Friday to discuss fundraising options. Adani Enterprises trades at a valuation of over 160 times its one-year earnings. For comparison: Reliance Industries Ltd. — India’s largest company by market value — about 21 times, according to Bloomberg data.

“Most of Adani’s shares are highly valued, so investors need to be cautious when opening new positions,” said Mohit Nigam, fund manager at Hem Securities Ltd. in Jaipur. “It will also be crucial for the future how they deal with the debt.”

appetite test

Adani Enterprises was included in India’s benchmark Nifty 50 index in September and its share sale is likely to attract a number of passive funds. However, according to Alice Wang, a portfolio manager at London-based Quaero Capital, who estimates the company’s free float at around 10%, simply adding more strategic or passive investors is unlikely to increase liquidity, which is far below the reported 27%.

“It would be a shame if the same strategic owners participate,” Wang said. “But since this could solve their problems without putting pressure on the share price, it’s a fait accompli – great for the banks, pending judgment for shareholders.”

A successful outcome for the tycoon would be something similar to how Indian billionaire Mukesh Ambani raised more than $27 billion in 2020 by selling stakes in Reliance Industries units to global investors including Meta Platforms Inc. and Google’s parent company, Alphabet Inc.

Anish Teli, managing partner at QED Capital Advisors LLP in Mumbai, said Adani’s expected share sale would be the first of many as the conglomerate moves into new verticals.

The current plans will not only “test the appetite for the stock,” but also “pave the way for further fundraising from institutional investors,” Teli said. “The group is involved in various cash-hungry companies with long development times and may need more donations soon.”

– With support from Ashutosh Joshi, Baiju Kalesh, Dinesh Nair, Manuel Baigorri and Menaka Doshi.

(Update with analyst quote in paragraph 10.)

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Asia’s richest man bet $5 billion to silence debt-obsessed critics

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