Adani Group Eyes Listing Five Companies As It Embarks On $107 Billion Capex

The Adani Group plans to list five businesses by 2028, as the ports-to-power conglomerate rejigs its capital structure. The flagship Adani Enterprises Ltd.'s follow-on public offering, India's biggest yet, is also part of this road map.

The group, controlled by the world's third richest person Gautam Adani, began capital restructuring in 2015-16 when it put in place a plan for each of its companies, primarily operating in the infrastructure sector. Jugeshinder Singh, Adani Group chief financial officer, explained the objective.

"When you ask a mutual fund what their investment horizon is, they will say three years. For an infrastructure business, nothing magical happens in three years. An asset itself takes three years to construct," Singh told BQ Prime. Since the group was looking at inter-generational wealth creation, it needed a particular type of investor who was themselves investing for inter-generational wealth creation, he said.

The first objective was to get its capital right—remove duration, rate and foreign exchange risk—and then get strategic equity capital that is consistent with the underlying business, said Singh.

The third is to get Indian people, who have traditionally invested for the long term, to participate, he said. "That is why we are doing the FPO so that ... wealth effect can go to the Indian people."

The Rs 20,000 crore FPO, which opens on Jan. 27, is aimed at repaying debt and fund capex of its subsidiaries.

In the last three years, the group has raised $16.5 billion worth of debt, some to refinance existing borrowing and a similar amount of equity to align group companies with the capital structure it has envisaged for them, said Singh.

Unlocking Value

Adani Group has articulated that it intends to demerge the businesses to unlock shareholder value, subject to the businesses meeting thresholds.

The demerger would be triggered if these two criterias are met: the organisation is able to sustain itself and meet the governance standards desired by the founder and group. And the business will have its own growth and investment plan plan without asking for money from the investors.

"Once these two categories are met, then we are comfortable with these businesses demerging," said Singh.

Adani will spin off and list five businesses between 2025 and 2028 depending on how they mature. They include Adani New Industries Ltd., Adani Airport Holdings Ltd., Adani Road Transport Ltd., and AdaniConnex Pvt. Ltd, and the group’s metals and mining units.

"The group's biggest bet, the hydrogen business, will start operating and functioning properly between 2025 and 2028. One element of its technical operating part is functional already. The production of the renewable element will be ready by the end of the calendar year 2025," Singh said. "We should see the first hydrogen being produced by the first or second quarter of 2026."

The group's debt will move up and down along with cash flows, Singh said. "The debt will be directly proportional to the businesses; for example, as the airport's business cash flow grows, it will have its own debt for its business. Similarly, when green hydrogen achieves its required Ebitda, it will have some debt commensurate with its cashflows; the number will rise for its business, and in consolidated terms, Adani Enterprises Ltd. will rise."

However, Adani Enterprises' debt-to-Ebitda metrics will not rise at the group has certain credit metrics and parameters to meet, Singh said. "They will remain where they are today in the same broad range."

Debt Structure Of New Businesses

Singh said that the company's debt structure is already set for the business. In the data centre business, it is more availability-based, and some services are debt-based, so debt-to-Ebitda will oscillate between 3.3 and 4.5 times on a stable basis. And as it matures, it needs less for development, the metric will start moving closer to 3.3 times, he said.

"Airports, roads, and hydrogen are directly consumer-facing, whether B2B or B2C," Singh said. "In consumer, like the port business, initially, during their growth phase, it could be more towards the 4-4.5x debt to Ebitda range, and then, like ports, it will come down to the 2.5-3x range, and that will happen because of the underlying credit that we would like to maintain," he said.

Capex Programme

In the next 9-10 years, Adani Enterprises will get around 70–75% of the total capex of $107 billion earmarked for the Adani Group. Of this, the $50 billion will be for green hydrogen, followed by airports with $15 billion, data centres with $5 to $7 billion, and so on, Singh said.  

"We don't make an announcement unless we are fully funded," he said. "We plan that upfront."

"One of the core values we bring to the table is that we bring our own engineering, procurement and construction, so the EPC profits are not leaked out of the businesses," Singh said. "They are there in those businesses. The first is the equity benefit that is there in those businesses. The promoter or companies don't take the EPC profit out," he said.

"The second is their internal accruals because the businesses are 'rate of return on asset' businesses. So the moment an asset is set up, it generates a rate of return," Singh said. "In the green hydrogen business, the park that is set up and is already cashflow positive. Airports, roads, and data centres are already cash flow positive."

"The internal accruals themselves will be a significant part of the equity. So, about 40% of the equity will come from internal accruals," Singh said.

Another 30–33% of the equity profits come from the EPC businesses, and then based on the gap, like in data centres, EdgeConnex is already a partner and will contribute 50% of the required equity, Singh said.

In green hydrogen, Total is the partner, it will bring 25% of the equity; in the airport business, at some stage, "we will look at it like we have a joint venture with duty-free" he said. "As a result, these businesses will fill the last gap." 

Disclaimer: Adani Enterprises is in the process of acquiring a 49% stake in Quintillion Business Media Ltd., the owner of BQ Prime.