Two recent news items, both relating to Adani group, caught my attention. The first was of course the joyous news of Gautam Adani having attained the third spot in the Bloomberg Billionaires Index with a net worth of USD 148 Billion ( Rs11.85 lakh crore) The Ahmedabad based businessman with interest in ports, gas, power, real estate etc overtook Amazon’s Jeff Bezos to become the third richest person on the earth. This news added with the news of India displacing Britain as the fifth largest economy in the world speaks well of the India’s economic reforms working out wonders!
The second news that came on the heels of Gautam Adani’s momentous achievement was something to worry about. It spoke about the debt overhang of the Adani group that at the last count seemingly rested at Rs2.22 lakh crore.
I interpret the above in the following ways:
(1) Given the nature of industries that Adani group has invested in – gas, power, ports, infrastructure et al – that are all capital intensive, the debt ought to be quite large.
(2) While Rs2.22 lakh crore appears a humongous figure on standalone basis, if compared to Gautam Adani’s personal net worth, it appears rather minuscule.
(3) While the net worth is personal, debt is corporate and debt to equity needs to be evaluated for individual companies that have borrowed the amounts, rather than on the basis of personal net worth.
Like we have systematically important banks ( SIBs) that are considered too large to be allowed to fail and are therefore, required to comply with certain additional regulations, I feel we should also have similar categorisation for corporates ( preferably groups – if not possible for groups, at least for individual companies). We have seen in the past that whenever a big group went bust, the damage to the banking sector and the economy was very severe.
A stitch in time can save nine. While I have no reason to doubt the quality of corporate governance, some additional monitoring at Government/RBI level can lead to timely course correction if there are head winds. And this recommendation is not exclusively for Adani but all those group/ corporate where they debt leverage is rather high , say above Rs50000 crore!
3 thoughts on “A stitch in time can save nine”
There was a news item in the Economic Times dated 9 Sept 22 that states there was an error in the calculation of Adani’s credits by the concerned firm. It appears that Adani had pointed out the error! So, beleieving such reports are quite risky at present times !!!
I agree; but the concern on Adani having over leveraged balance sheet is quite prevalent
And if this is indeed true, it’s a matter of great relief