Adani courts investors for comeback - IFR News
Published 1 Mar 2024, 13:45:20
By Krishna Merchant, Sara Velezmoro
MUMBAI, Mar 1 (IFR) - Adani Green Energy is sounding investors ahead of a planned US dollar bond offering that would be the first from the Adani Group since US short-seller Hindenburg Research's damaging report last year.
The renewable energy unit is planning a long-tenor US$409m green offering, even as some investors continue to question the ESG credentials of the group.
No Adani Group company has issued US dollar bonds since Hindenburg's report in January 2023 accused the group of fraud and false accounting, prompting a sell-off in group companies' shares and bonds. Adani Group has denied the allegations, and the Indian supreme court ruled in January that no further investigation of the conglomerate is required beyond the market regulator's ongoing inquiry, which must conclude by the end of March.
The last offshore issue by an Adani Group company was Adani Green's US$750m 4.375% three-year notes in September 2021.
The proposed new issue of amortising notes, to be rated Ba1/BBB– (Moody's/Fitch), will have an 18-year door-to-door tenor with a weighted average life of 12.7 years. Solar power producers Parampujya Solar Energy, Prayatna Developers and Adani Green Energy (UP) make up the issuer group.
Investor meetings ran from February 28 to March 1, and the notes are expected to launch in the week of March 4. Barclays, DBS, Deutsche Bank, Emirates NBD Bank Capital, First Abu Dhabi Bank, ING, IMI-Intesa Sanpaolo, Mizuho Securities, MUFG, SMBC Nikko, Societe Generale and Standard Chartered are joint bookrunners for the 144A/Reg S deal.
A banker on the deal said there have already been strong indications of interest.
"We did get some feedback on the Hindenburg report but investors are not concerned about the credit," she said, adding the company strong's performance last year is a sign it was not affected by the report.
Adani Green's revenue from power supply for its financial year ended March 2023 rose 54% year on year to Rs58.25bn (US$702.54m), with its cash profit up 72% at Rs31.92bn, according to its latest investor presentation.
Other concerns
While regulators seem unlikely to take any action in the wake of the Hindenburg report, other concerns persist.
"We believe there remains a degree of offshore investor aversion towards Adani Group bonds, as there are lingering questions about corporate governance that were left unanswered," said Leonard Law, senior credit analyst at Lucror Analytics.
Some sustainability-focused investors and researchers continue to raise red flags about Adani Green's ESG credentials. The use of proceeds for Adani Green's transaction falls under the company's green financing framework and Sustainable Fitch has given the deal its stamp of approval, but the wider Adani Group has ties to coal.
“Investing in any Adani company is like pouring money into a sieve – there’s no telling where it will go," said Nick Haines, senior campaign manager at non-profit Eko, in an email note.
Think tank Anthropocene Fixed Income Institute has similar concerns. “Sustainable investors may be at risk of funding undesirable investments – a recent example being Adani Green shares pledged as collateral for debt facilities supporting coal mining," said David Lewis, research director for APAC, in a note.
Last year Adani Green and two other group companies, Adani Ports and Special Economic Zone and Adani Transmission, pledged additional shares to State Bank of India in order to obtain a US$300m letter of credit for the group's Carmichael coal mining project in Australia. Adani Green pledged 1.06% of its shares to SBI, according to a release in February 2023.
As a result, some research analysts continue to question the linkages between the group companies.
"What assurance can be given that any funding provided to Adani Green will not indirectly support coal development at other Adani entities?" said Lewis.
Bonds trade at premium
Analysts said that the governance concerns have caused the group's bonds to trade wider than their peers.
For example, the offshore bonds of Adani Ports and Adani Electricity, both of which are rated Triple B, are trading at yields of 6.5%–7%. "This is at a slight premium to Indian IG bonds such as Tata Steel and Reliance Industries, and more in line with high-yield peers such as Tata Motors and JSW Steel," said Lucror's Law.
The new issue offers more security to investors than a plain senior bond. The bonds are secured against operational power plants and expected to be rated BBB– by Fitch. Each of the special purpose vehicles under the restricted group guarantees the note obligations of the other two SPVs. This, along with the support of predictable revenues, diversified projects and long-term power purchase agreements with fixed tariffs, provides comfort to investors, Moody's said on February 28.
Law expects the appealing yield on offer will outweigh investors' concerns at the group level.
Adani Renewable Energy's 4.625% October 15 2039 notes are trading at 7.12% in the secondary market, according to LSEG data.
Investors will also use as a reference the US$540m amortising secured project bond from Indian toll road operator IRB Infrastructure Developers, which priced on Thursday at 7.125%. That deal has a door-to-door tenor of eight years, a WAL of 7.25 years and expected ratings of Ba2/BB+ (Moody's/Fitch).
A senior credit analyst at a foreign bank expects Adani Green to price around 7%–7.5%, helped by the renewable energy angle.
The issuer will use the proceeds to redeem its US$500m 6.25% senior secured notes due on September 8.
Electricity transmission company Adani Energy Solutions, formerly known as Adani Transmission, is also in talks with banks on a potential benchmark US dollar bond offering via a private placement with US investors, according to sources aware of the plan.
"We are looking to raise long tenor bonds, of close to 20 years, and the talks have started with the banks," one of the sources said. "The deal will happen in a few months, but we would not like to give a timeline."
It is looking to raise at least US$400m and the notes will be backed by infrastructure assets, according to the sources.
An Adani Group spokesperson did not immediately reply to an email seeking confirmation of the plans.
(Reporting by Krishna Merchant and Sara Velezmoro; Editing by Morgan Davis)