On Wednesday, November 24, 2021, Gautam Adani, chairman of the Adani Group, surpassed Mukesh Ambani, chairman and managing director of India’s most valuable company Reliance Industries (RIL), in terms of personal wealth.
RIL’s share price fell as a result of the $15 billion Aramco transaction call-off. Indeed, RIL’s share price has been under pressure for the past week as a result of speculation that the Aramco acquisition has been called off.
RIL’s share price has fallen by more than 9% in the previous month after reaching a record high of Rs 2,751.35 in October, causing Ambani’s fortune to dwindle.
Since June 2015, Ambani has held the title of the richest Indian. However, this is not the first time Ambani has been deposed from the king. Sun Pharma’s Dilip Shanghvi topped the list in 2015, owing largely to the selling of his interest in the company. (March 4, 2015 was also a Wednesday.) This time, Ambani’s opponent is none other than Gautam Adani.
However, according to the Bloomberg Billionaires Index (a daily list of the world’s wealthiest persons), Ambani was back at the top on November 25. According to the report, Ambani held the top spot in Asia and is ranked 12 in the globe, with $89.7 billion as of November 25. This is due to a 6.02 percent increase in RIL shares on November 25. On November 25, Adani was ranked 13th in the Bloomberg World Billionaires list, barely below Ambani’s $89.1 billion.
How Did Adani Bridge the Divide?
Adani, the second-richest Indian on the list, has rapidly closed the wealth gap with Ambani as the share value of its group firms has increased. Adani’s wealth has just surged to unprecedented heights, with approximately $55.3 billion added to his wallet since 2021. According to Bloomberg, Ambani added only $13 billion within the same time span.
Let’s take a closer look at the financial indicators of Adani Group’s publicly traded firms and how he made such a fortune from them.
Adani’s large gamble on renewable energy is paying off. Adani Green Energy is the group’s renewable energy division, with a portfolio of wind and solar power projects. The company has been taking advantage of expansion opportunities created by the government’s Green Energy Mission. Its goals have been connected with the government’s environmental goal of achieving a zero-carbon emission country in the near future.
Adani Green Energy was spun off from its parent company in 2018, and it has gained traction since then. The company’s shares have provided spectacular returns of 2826.77% during the last three years.
For the same time span, Adani Total Gas and Adani Enterprises returned 1,506 percent and 1,021 percent, respectively. Adani Transmission has increased 454 percent in the last year alone. Four of Adani Group’s six publicly traded firms have produced three-digit gains in the last year.
Adani’s overall wealth, according to the Bloomberg Billionaire Index, is $89.1 billion as of Thursday, November 25, 2021, about $0.6 billion less than Ambani’s total projected worth of $89.7 billion. Elon Musk of Tesla is ranked first in the Bloomberg Billionaire Index, while Jeff Bezos of Amazon is ranked second.
How does Adani Group fund its growth?
The Adani Group’s involvement in India has grown during the last five years. It is not only the country’s largest private port operator, coal importer, coal miner, private power producer, city gas distributor, and edible oil importer; it has also expanded into urban water management, small and medium-sized business lending, power transmission, and distribution, airports, data centers, aerospace, and defense.
Other Indian economic behemoths, such as the Mukesh Ambani-led Reliance Group and the Tata group of enterprises, have substantial revenue-generating firms such as Reliance Industries and Tata Consultancy Services, which enable them to fund their development aspirations. However, the Adani group lacks a comparable cash generator.
In 2017-2018, the Adani Group’s six listed firms achieved operating profits of Rs 20,141 crore, accounting for nearly half of its Rs 77,000 crore turnover. After deducting interest, tax, depreciation, and other charges, their aggregate net profit is Rs 3,455.34 crore. Despite this little investment, the Adani group has grown rapidly, acquiring projects from other corporations, launching new ventures, and investing in existing ones.
Adani Group subsidiaries, for example, borrow money by using the shares they own in listed Adani Group firms as collateral. They sometimes utilize these borrowings to buy ownership in sister companies — even those in unrelated industries. This money is also lent to group corporations. Step-down subsidiaries – or group company subsidiaries — pledge assets and raise funds, which are subsequently loaned or invested in group firms.
Taken together, these transactions paint a picture of a group that has placed larger bets on growth than other companies might have, hoping to capitalize on a number of favorable factors such as perceived proximity to political power, access to capital, and a drop in the fortunes of rival infrastructure companies.
Here are six ways the Adani group gets funds, as well as what financial experts and Adani Group officials have to say about them.
Companies buy stock in other group companies, even if they are in unrelated industries.
Adani Group companies investing in other Adani Group firms can be observed in the financial statements of Adani Transmission, one of the group’s six listed companies. It was founded in 2013 and operates in the power transmission industry.
Adani Properties, a subsidiary of Adani Enterprises, purchased a 9.05 percent investment in Adani Transmission in 2015-2016, despite the fact that the two companies are in quite different industries. According to Adani Properties’ financial statement for 2015-2016, “the principal goal of the company is to let out and/or lease immovable properties.”
The next year, another group firm, Parsa Kente Rail Infra, purchased an additional 9.05 percent share in Adani Transmission. In addition, Parsa Kente is the name of a coal block Adani is mining in Chhattisgarh. Adani Properties withdrew Adani Transmission in 2017-2018, although Parsa Kente Rail Infra, now renamed Adani Tradeline, retained a stake.
Companies borrow money to buy stock in other companies in their group.
Adani Infra’s website characterizes it as the group’s in-house EPC (engineering, procurement, and construction) branch. In addition, the company is remarkable for two other reasons.
It is a subsidiary of Adani Enterprises that raises a significant amount of funds for the firm. It raised Rs 15,048 crore in debt in 2017-18. These loans were made possible by offering shares in group firms as collateral.
A portion of this money was utilized to repay previous loans. The remainder was distributed to group companies in the form of loans, equity (shares), or quasi-equity (preference shares). In reference to funds raised by the firm, Brickwork Rating stated in an analyst report dated January 30, 2019: “The same is raised for providing loans and advances to Group companies, or investing in their shares or securities.”
Group businesses lend to one another.
Between 2014 and 2018, Adani Transmission, Adani Enterprises, Adani Infra, and Adani Agrifresh exchanged money in the form of loans and repayments.
These transactions begin in 2014 when Adani Transmission received funds in the form of loans and shares from Adani Enterprises and two of its subsidiaries.
Adani Transmission repaid a portion of these loans the same year, but it also purchased stock in other group firms and established two subsidiaries.
This pattern repeated again in consecutive years. Adani Transmission paid their past loans but also borrowed new money from group firms, including Adani Enterprises subsidiaries as well as Adani Ports and SEZ. Adani Transmission also provided loans to its subsidiaries and repaid money loaned to other group companies.
A portion of the proceeds from step-down subsidiaries is distributed to other holding companies.
Adani Transmission India is a subsidiary of Adani Transmission, one of the group’s six publicly traded enterprises. According to its 2014-2015 financial records, the company borrowed Rs 2,794.24 crore by pledging all immovable and movable assets of two transmission lines – Mundra-Mohindergarh-Dehgam and Tiroda-Warora. The majority of this loan, Rs 1,882.3 crore, was spread out over five years at interest rates ranging from 12.25 percent to 13.5 percent.
Almost half of the money it borrowed, Rs 1,222.97 crore, went to another publicly traded company, Adani Enterprises. This loan was granted at a time when Adani Enterprises was putting money into Adani Power.
Group companies help struggling businesses
Between 2013 and 2018, Adani Power struggled, owing largely to its Mundra power project, which was based on the supply of inexpensive coal from Indonesia. When the country hiked the price of its exported coal, Adani Power Mundra stated that its coal costs had grown so dramatically that it could no longer offer power at the original prices.
During this time period, related party transactions in the company’s annual reports show that Adani Enterprises issued loans to Adani Power, either directly or indirectly, through subsidiaries such as Adani Infra (India) or Kutchh Power Generation.
The Adani Group obtains debt and equity from outside sources.
On July 1, 2018, the group announced that it would generate Rs 5,000 crore-Rs 6,000 crore through the sale of equity in companies such as Adani Ports. International investment management firms such as America’s Capital Group and Singapore’s Temasek Holdings were among those who purchased shares.
Aside from these, the business is seeking equity investments from offshore funds such as Universal Trade and Investments, a Mauritius-based fund that has previously invested in Adani Green Energy. Adani Enterprises’ 2017-’18 annual report lists offshore funds Albula, Cresta Fund, APMS Investment Fund, and Asia Investment Corporation as shareholders.
All four funds are registered in the same building in Mauritius and are mentioned in the Paradise Papers, which are leaked records from two major offshore financing businesses.