Contagion risks loom over 2 Adani companies

Ratings agency Fitch on Tuesday said that two Adani Group subsidiaries are exposed to heightened contagion risks as a result of governance weakness at the conglomerate's sponsor level, while affirming BBB- ratings to group entities.

Fitch said that Adani Transmission and Adani Ports and Special Economic Zone are prone to risks which could affect financial flexibility.

However, it added that the ratings of restricted groups would not be constrained at ‘BBB-’ at this stage if other factors driving their credit quality improve. In the note, Fitch highlighted that the contagion risk is lower for restricted groups

The restricted group's credit profile is supported by structural enhancements, such as a defined cash waterfall and limits on the incurrence of additional debt, the note said further.

The US-based credit rating agency opined that the debt of Adani group’s rated Indian entities as of end-December 2022 was offshore and largely secured, with US dollar bonds that will mature only from mid-2024. The liquidity position at all rated entities or restricted groups would benefit from cash flow gene ..

Gautam Adani

The Indian government has not engaged itself in the Adani Group's dispute with a US short seller Hindenburg Research, which has triggered a massive rout in the company's shares, said Sanjeev Sanyal, Member of the Economic Advisory Council to Prime Minister Narendra Modi.

“The government has not intervened anywhere. Nobody’s having to rescue anyone in our system,” Bloomberg quoted Sanyal as saying.

The State Bank of India, the country's largest financier, and the Life Insurance Corp., the country's largest life insurer, have extremely small exposures to Adani group companies, said Sanyal, adding that none of the companies is in financial distress.

LIC, which has assets under management of about $539 billion, had exposure to Adani to the tune of over $4 billion.

Sanyal reiterated that our job is to make sure the markets are transparent and liquid and functional. “Transparency and orderly market movement is the only thing we care about. If that is maintained, the prices will sometimes go up, sometimes they’ll come down,” he added.

According to Sanyal, the recent failure of Silicon Valley Bank will have no immediate impact on India's startups.

The Adani Group crisis started when the US-based short seller firm Hindenburg Research, led by Nathan Anderson accused the conglomerate of stock market manipulation, money laundering, and accounting fraud via shell firms. The report caused a massive rout in the shares of Adani Group companies

Even though the Adani Group has denied all these allegations, Gautam Adani lost around $61.7 billion of his wealth on a year-to-date basis. Adani was worth $58.90 billion on Wednesday, much lesser than $150 billion in September 2022.

Meanwhile, the combined market capitalisation (m-cap) of seven-listed firms namely Adani Enterprises, Adani Green Energy, Adani Ports and Special Economic Zone, Adani Power, Adani Total Gas, Adani Transmission and Adani Wilmar tanked by more than Rs 4.50 lakh crore to Rs 8.63 lakh crore on March 23, 2023, from Rs 13.20 lakh crore on March 31 last year.