India banks' exposure to Adani Group is limited - CLSA, Jefferies

We don't see material risk arising to the Indian banking sector: Jefferies

Dried branches of a tree stand outside Adani Corporate House in Ahmedabad, India, Friday, Jan. 27, 2023. Shares in India’s Adani Group plunged up to 20% on Friday and the company said it was considering legal action against U.S.-based short-selling firm Hindenburg Research for allegations of stock market manipulation and accounting fraud that have led investors to dump its stocks. (AP Photo/Ajit Solanki) | Photo Credit: Ajit Solanki

Indian banks' exposure to the Adani Group is within manageable limits, said brokerage houses CLSA and Jefferies, as the group fends off an attack from well-known short-seller Hindenburg Research.

The U.S. short-seller said it held short positions in the Indian conglomerate, accusing it of improper use of offshore tax havens and flagging concerns about high debt that eroded $11 billion in investor wealth on Wednesday.

"While we watch for developments here, we don't see material risk arising to the Indian banking sector," brokerage firm Jefferies said in a note dated Jan.uary 26.

According to the brokerage, the group's debt accounts for 0.5% of total loans across the Indian banking sector. For public sector banks (PSUs), the debt is at 0.7% of total loans and for private banks, it is at 0.3%.

"Our recent conversation with industry participants also indicated that cash-flows and repayment timelines of debt have been conservatively planned," Jefferies said.

The group comprises the flagship Adani Enterprises Ltd. as well as Adani Ports and Special Economic Zone Ltd., Adani Power Ltd., Adani Green Energy Ltd. and Adani Transmission Ltd.

Brokerage CLSA said it estimated the consolidated debt of these five companies at ₹2.1 trillion ($25.73 billion), or at ₹1.9 trillion, excluding inter-group lending.

Indian banks have exposure to less than 40% of total group debt, the brokerage estimates.

"Within this, private banks' exposure is below 10% of total group debt and most banks have indicated that they have largely financed assets with strong cash flows, such as airports/ports," CLSA said.

While PSU banks have material exposure at 30% of group debt, this level has not increased in the past three years, CLSA said.

"Most of the incremental funding to the group for new businesses and acquisitions has come via overseas sources."

The brokerage pegs the exposure of Indian private banks at 0.3% of FY24 loans and 1.5% of FY24 net-worth. For PSU banks, the exposure is 0.7% of FY24 loans and 6% of FY24 net-worth, CLSA said.