Adani group to raise $2 billion of dollar denominated debt

At a time when most companies are dreading at the very though of dollar denominated debt, the Adani group has decided to go ahead and aggressively borrow $2 billion from the dollar bond market. The dollar bond market is where Indian companies can raise funds which have to be serviced in dollars. Obviously, that does create a big risk if the rupee weakens against the dollar and in the current year the rupee weakened more than 12% against the dollar. Then what is it that is inducing the Adani group to borrow money in dollar denominated bonds in this rather volatile market situation. We will come back to that later.

This is part of the long term plan of the Adani group to raise nearly $10 billion in debt. This will be done through a combination of issue of green bonds and the issue of dollar denominated bonds. In terms of break up, Adani Transmission now plans to raise $1 billion while Adani Electricity Mumbai and Adani Green Energy plan to raise $500 million each, taking their immediate dollar bond fund raising to $2 billion. That is roughly equivalent to Rs16,400 crore in Indian rupees. Most of these borrowings will be used to retire their high cost domestic debt so as to reduce their effective cost of funds.

The bond story for Adani has been mixed for the Adani group. For instance, in September 2021, when Adani Green Energy tried to raise $750 million in the dollar denominated bond market, it got bids for close to $3.5 billion. That is a near 5 time subscription showing the high level of appetite for Adani paper in the global market. However, when the Credit Sights report was issued earlier this year on the high level of debt in the Adani group, the worst hit were the bonds of Adani group which saw yields spiking to over 9% levels. Clearly, it plays both ways for the Adani group. But in between, rising debt levels is also a concern.

As of May 2022, the Adani group already had outstanding debt of Rs. 2.20 trillion and it is likely to get closer to Rs. 2.70 trillion by the end of the current year. One can argue that this is group level of debt, but while the Adani group has substantial market cap to support such debt levels, it does not have kind of robust bottom lines that many other large companies have. That is what puts the company in a slightly tighter spot with respect to the overall debt. While the Credit Sights issue may have died a natural death, analysts always have one eye on the levels of debt of the Adani group at any point of time.

Then why is the Adani group going so aggressively after dollar debt. The current yields on Adani bonds indicate that the cost of funds for the group to borrow in the domestic market have gone up sharply. Even to swap their loans for fresh loans in the domestic market is going to cost them a bomb. Under these circumstances, the only option they have is to refinance these loans through the dollar bond market. After all, the rupee is already down over 12% against the dollar this year and with the Fed indicating at going slow on rate hikes and inflation also tapering lower, the dollar borrowing risk has surely come down sharply.

Clearly, the Adani group is betting on the much bigger appetite that the dollar bond market has to absorb such risky projects, in the area of green energy. Also, it is much easier to raise long term funding in the international dollar denominated market than in India. So Adani does not have to worry about the high yields on its bonds in India or about the high cost of refinancing. Instead, it can borrow in dollars at an attractive rate without too much risk of rupee depreciation. For the Adani group, this may not reduce their debt levels, but surely makes the cost of their debt more palatable for now.

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