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India banks’ exposure to Adani Group is limited – CLSA, Jefferies

by WorldFinance
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India banks' exposure to Adani Group is limited - CLSA, Jefferies
© Reuters. FILE PHOTO: Commuters walk past a bank sign along a road in New Delhi, India, November 25, 2015. REUTERS/Anindito Mukherjee

MUMBAI (Reuters) – Indian banks’ exposure to the Adani Group is within manageable limits, said brokerage houses CLSA and Jefferies, as the group fend off an attack from well-known short-seller Hindenburg Research.

The U.S. short-seller said it held short positions in the Indian conglomerate, accusing it of improper use of offshore tax havens and flagging concerns about high debt that eroded $11 billion in investor wealth on Wednesday.

“While we watch for developments here, we don’t see material risk arising to the Indian banking sector,” brokerage firm Jefferies said in a note dated Jan. 26.

According to the brokerage, the group’s debt accounts for 0.5% of total loans across the Indian banking sector. For public sector banks (PSU), the debt is at 0.7% of total loans and for private banks, it is at 0.3%.

“Our recent conversation with industry participants also indicated that cash-flows and repayment timelines of debt have been conservatively planned,” Jefferies said.

The group comprises the flagship Adani Enterprises Ltd as well as Adani Ports and Special Economic Zone Ltd, Adani Power Ltd, Adani Green Energy Ltd and Adani Transmission Ltd.

Brokerage CLSA estimates the consolidated debt of these five companies at 2.1 trillion rupees ($25.73 billion), or at 1.9 trillion rupees, excluding inter-group lending.

Indian banks have exposure to less than 40% of total group debt, the brokerage estimates.

“Within this, private banks’ exposure is below 10% of total group debt and most banks have indicated that they have largely financed assets with strong cash flows, such as airports/ports,” CLSA said.

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While PSU banks have material exposure at 30% of group debt, this level has not increased in the past three years, CLSA said.

“Most of the incremental funding to the group for new businesses and acquisitions has come via overseas sources.”

The brokerage pegs the exposure of Indian private banks at 0.3% of FY24 loans and 1.5% of FY24 net-worth. For PSU banks, the exposure is 0.7% of FY24 loans and 6% of FY24 net-worth, CLSA said. ($1 = 81.6150 Indian rupees)

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