Adani Group deeply overleveraged, warns Fitch

New Delhi: Strong competition between the Adani Group and Reliance Industries to achieve market dominance could lead to imprudent financial decisions being made, rating agency Fitch said Tuesday in a credit note with an unusual amount of caveats and contradictions.

Indian billionaire Gautam Adani’s ports-to-power conglomerate is “deeply overleveraged,” with the group investing aggressively across existing as well as new businesses, predominantly funded with debt, a Fitch Group unit said.

The aggressive expansion pursued by the Adani Group, led by Asia’s richest person, has put pressure on its credit metrics and cash flow, CreditSights said in the report, adding that “in the worst-case scenario” it may spiral into a debt trap and possibly a default.

"Owing to its reputation both with bank lenders and in the domestic market, and diverse asset base in stable infrastructure industries, we see a few mitigating factors to the credit concerns highlighted above," said Fitch noting strong relationships with banks and bond holders.

However, despite the strongly worded note and headline, Fitch has not changed its "market perform" recommendations on the two Adani credits (Adani Green Energy and Adani Ports) under its coverage.

We feel many group companies require equity capital injections to reduce their high leverage levels despite the promoter’s large net worth, it is difficult to predict the extent of the promoter’s capacity to continually provide liquidity support,” said Fitch.

"The promoter family has currently pledged minimal stakes in the 6 listed entities. This leaves room for them to pledge their residual stake as collateral, in case they feel the need to raise funds and potentially infuse liquidity support to a subsidiary in need of cash."

Fitch warned that in the worst case, Adani's debt-funded growth plans could eventually spiral into a massive debt trap but then retains their "market perform" ratings on the two Adani credit they cover and simply concluded they "remain cautiously watchful".