“If Adani happens to default on its debt…”: What Aswath Damodaran says on Adani’s green bonds
Valuation guru Aswath Damodaran says if Adani Group happens to default on its debt, he hopes it starts with the green bond holders. “I cannot think of a group that deserves default more,” he said in his latest blog Musings on Markets.
Damodaran teaches corporate finance and valuation at the Stern School of Business at New York University.
There is weakness in the global economic setting that Adani Enterprises exploited, and that is ESG (environmental, social, and governance), an acronym far more deserving of the ‘biggest con’ label than Adani, Damodaran said.
“If you review the Adani website and sales pitch, it is quite clear that the company learned to play the ESG game well, creating an entire ESG universe to underpin its companies, and exploiting the green bond market, presumably for its green energy business,” Damodaran said.
The notion that a family group that build ports, airports and gas transmission lines qualifies for green bond issuance, tells you less about the group making the issuance, and more about the emptiness of the green bond promise, he said.
“In fact, if Adani happens to default on its debt, I hope that it starts with the green bond holders, since I cannot think of a group that deserves default more,” Damodaran said in his blog on February 4.
Latest development
In the latest development, promoters of Adani Group said they would prepay $1.1 billion in share-backed facility maturing September 2024.
In light of recent market volatility and in continuation of the promoters’ commitment to reduce the overall promoter leverage backed by Adani listed company shares, an Adani press release read, “we are pleased to inform that promoters have posted the amounts to prepay $1,114 million ahead of its maturity of Sep 2024.”
The Adani group said it would release 27.56 million Adani Green Energy shares, representing 3 per cent of promoters’ holding in the company. It said it would release 168.27 million Adani Ports shares, representing 12 per cent of promoters’ holding. Besides, the Adani group said it would release 11.77 million Adani Transmission shares, representing 1.4 per cent of promoters’ holding in the company.
Adani, a competent player
Damodaran, meanwhile, called Adani group a competent player and noted that Indian market was filled with “frauds and incompetents”.
“A more nuanced version of the Adani story is that the family group has exploited the seams and weakest links in the India story, to its advantage, and that there are lessons for the nation as a whole, as it looks towards what it hopes will be its decade of growth,” he said.
He said it was possible that Hindenburg indulged in hyperbole when it described Adani to be “the biggest con” in history.
Damodaran talked about the issue of Mauritius-based shell entities that Hindenburg raised and their links to the Adani Group companies. Besides, he tried to decode Adani’s stock price manipulation charges.
“To be able to manipulate and move the market capitalisation of a company by a hundred billion, roughly the increase in value in 2022, one would expect to see huge numbers of shares being traded by these entities. I don’t see that,” he added.
Damodaran said there were questionable claims about earnings manipulation because if Adani was manipulating earnings, it was “not doing a very good job, reporting low margins and return”.
Damodaran said he was puzzled that Hindenburg’s short thesis spends as much time as it does trying to convince that the company was over levered.
Damodaran said even if one believes Hindenburg’s contention that a low current ratio equates to higher default risk, being over levered was not a con game. He said it was a risk, perhaps poorly thought through, but one that equity investors in many investments took to increase their returns.
Also read: Adani Ports recoups 11% from day’s low ahead of Q3 results
Also read: Adani group: Aswath Damodaran doesn’t buy Hindenburg’s ‘biggest con in history’ claim. Here’s why
