Are Adani Group of companies too big to fail?

Gautam Adani led Adani Group of companies have seen a meteoric rise in their share prices over the past few years with banks, large institutional investors and retail investors piling onto the rise witnessed in the shares. 

Adani companies - Adani Green Energy, Adani Enterprises, and Adani Transmission—have seen their shares rise multifold over the past five years.

But, the rise was recently challenged by a scathing report by US-based short seller Hindenburg research dated January 24, which sent the stock tumbling down. Adani stocks have lost about 50% of their value, wiping out billions in market value as the Hindenburg report alerted investors and dampened sentiment.

However, the question is if the Adani group will continue its fall or is it  too big to fail? 

Let’s look at the company in detail:

Adani Group: Share Price Performance:

Adani Group: FY22 financials 

Adani Group: Why is it too big to fail?

State and foreign banks have huge exposure

One way of judging if a company won’t be allowed to go under is the systemic risk that comes along with it. Systemic risk essentially means that the economy can come crumbling down if a company or organization falls. 

In the case of Adani, India’s state-owned banks have massive exposure to the firm. Hong Kong-based brokerage CLSA notes that India’s public sector banks hold 30% of Adani Group’s total debt, and private Indian lenders hold less than 10%. 

Spread across group companies, the Adani Group has a consolidated gross debt of Rs 1.9 lakh crore and a net debt of Rs 1.6 lakh crore. With a combined net debt of between Rs 30,000 and 40,000 crore, Adani Green Energy, Adani Power, and Adani Ports and SEZ are the top three firms by debt levels.

The majority of the debt owed by the Adani group is held by foreign institutions with loans or bonds that are primarily denominated in US dollars. Private equity companies like Apollo Global Management, which provided Mumbai Airport with a US$750 million loan, are among the other lenders. Middle Eastern sovereign wealth funds attempting to recycle petrodollars are among the largest holders of Adani's bonds.

Heavy investments by LIC

The Life Insurance Corporation of India has made heavy investments into Adani stocks. Now the LIC is India’s largest insurance provider, having a total  exposure of Rs 36,474.78 crore towards Adani stocks.

LIC has a 4.2% stake in Adani Enterprises, the flagship company and The insurer also has stakes in other Adani group companies like a 9.14% stake in Adani Ports and 5.96% in Adani Total Gas.

Heavy Retail Investor Participation

Adani’s promoters hold a majority stake in the firm. As on February 10, the promoter holding in the firm stood at 64%. However, retail investors account for 2.18% of shareholders. It is the regulators responsibility to ensure that retail investor interest is not harmed and will try their best to ensure that the firm will not go under.

This is not investment advice. Investments in the securities market are subject to market risk, read all the related documents carefully before investing. Past performance is not indicative of future returns.