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adani: CreditSights acknowledges calculation errors in its analysis of Adani Group’s debt

Global bond analysis firm CreditSights, which had previously flagged Adani Group’s “leveraged” capital structure, Thursday acknowledged miscalculation in two key group entities and released a revised note to gradually reduce debt-to-operating earnings ratios and systemic capital management plans.

“In a follow-up to our report outlining our credit issues with Adani Group companies, we present this piece to align our calculations with Adani Group’s presentation,” CreditSights said in a report Thursday. “We discovered calculation errors we had made in two of the companies of the Adani Group – Adani Transmission and Adani Power.”

In the new memorandum from Credit Sights, qualitative profile descriptors such as ‘deeply overleveraged’ have been omitted.

Adani Group’s shares have been multi-baggers over the past two years, with the scrips of four publicly traded entities rising more than ten-fold, putting promoter Gautam Adani third on the latest global list of Bloomberg billionaires.

The Adani Group is said to have contacted CreditSights, highlighting its systemic capital management plan, improved net debt-to-corporate profit ratio and a diversified loan portfolio to allay concerns about mounting debt, ET reported Monday.

For Adani Transmission, the global research firm adjusted estimates of earnings before interest tax depreciation and amortization (EBITDA), or operating profit, from Rs 4,200 crore to Rs 5,200 crore. For Adani Power, it has revised its gross debt estimates to Rs 48,900 crore from Rs 58,200 crore. Of course, these corrections have not changed CreditSights’ investment recommendations.

“As far as Adani Green Energy (AGEL) is concerned, we feel that the expansion of the company, both organically and inorganically, has resulted in increased leverage,” the research firm said. “The differences between management’s EBITDA calculations and our EBITDA also stem from the fact that management includes interest income.”

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Adani’s management said that interest income generated on various cash reserves should be added to the total EBITDA of the various Adani entities.

Such reserves include the mandatory maintenance reserve and liquidity reserves, which Adani management believes are maintained at 1.25x-1.5x of future 12-month liabilities – in addition to the balances required for other reserves.

“We recognize management’s view that interest income is typically added for infrastructure companies,” CreditSights said in its revised review.

CreditSights analysts met Adani Group’s Chief Finance Officer Jugeshinder Singh, popularly known as Robbie Singh, head of corporate finance Anupam Misra, and head of ratings Rahul Kumar.

Adani’s management highlighted particular factors, such as cash waterfall structures for infrastructure loans, run-rate EBITDA and affiliate sponsorship debt, elements it believes investors should consider when analyzing the group’s credit profile.

Run rate EBITDA is calculated by adding “annualized EBITDA for assets commissioned after the beginning of the fiscal year” to each company’s operating EBITDA. By using run rate EBITDA to calculate the group’s leverage metrics, management believes it provides a fairer picture of the company’s ability to service debt.

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