Adani Green to see debt equity ratio fall sharply from 95% to 60%

Just a week back, there had been scathing reports from S&P Global and Fitch that the Adani group was extremely leveraged. While the report pertained to all the Adani group companies, the problem of leverage was the most acute in the case of Adani green where the debt equity ratio was sharply higher. Both Fitch and S&P Global had red-flagged the high levels of debt, especially the debt that the group had taken to bankroll its massive acquisitions of ACC, Ambuja Cements and a host of other target companies.

Now things are likely to improve for Adani Green Energy, according to a report by Nomura. That is because; the Abu Dhabi-based International Holding Company has injected $500 million into Adani Green Energy. This infusion will help to bring down the debt to capital ratio from 95.3% down to 60%. While this is still high by global standards, it is surely more comfortable compared to what it was previously. According to Nomura, this pullback of leverage would be broadly positive for the ratings of the company in the future. 

As of now, the last quarter results don’t reflect the change but will only be evident from the September 2022 quarter numbers. That is when the capital will reflect the infusion and the reduced leverage ratio. It may be recollected that IHC of Abu Dhabi will be investing a total sum of $2 billion across 3 Adani group companies, of which $500 million will come into the coffers of Adani Green Energy. This should address the issue of escalating leverage for the time being, but it remains to be seen how long these levels of leverage can be sustained.

Leverage is going to be a major challenge for the Adani group. For instance, the group as a whole has committed $70 billion of investments in green energy by the year 2030. It remains to be seen how much of that would be funded with equity and how much with debt and that will have a bearing on future debt equity ratio. Adani Green Energy is aiming to straddle across the complete green energy value chain and emerge as the world’s largest renewable energy producer. 

This would be a key factor in India becoming carbon neutral by the year 2070. Currently, Adani Green Energy has a debt / equity ratio of 20:1 times, which makes Adani Green Energy the second most leveraged company in Asia. That is hardly a badge of honour at a time when most of the large companies in India have been trying to deleverage their balance sheets. However, if the equity infusion like the IHC case is repeated, then it could help to substantially improve the debt equity ratio of the Adani group.