Adani faces debt bill as Abbot Point refinancing fails
The deteriorating financial state of the Adani Group and its Abbot Point coal export terminal raise serious questions about the ability of Adani to keep using its own money to finance the much-delayed Carmichael coal mine and rail line.
Three major debts of Abbot Point are due in the next eighteen months, and another US$500 million is due in 2022, bringing this debt burden to over $1 billion Adani has to either refinance or repay.
Adani has already delayed the refinancing of one of its bonds, causing Abbot Point to be downgraded, and has confirmed it will pay back another bond worth $100 million out of its own pocket this week.
It comes against a backdrop of Abbot Point struggling to fill its own capacity, the COVID-19 pandemic causing chaos on financial markets, and Abbot Point’s future earnings relying on the controversial Carmichael coal mine to proceed.
Downgrades and refinancings
On 31 March Fitch Ratings downgraded the Abbot Point coal export terminal from BBB- to BB+ (sub investment grade) with a negative watch, suggesting the port’s credit rating could degrade further. The downgrade was triggered by Adani’s postponement of an attempt to refinance a US$140 million bond due in September 2021. Adani’s inability to refinance its bond externally appears due to increasing investor concerns about coal assets, including the immediate impact of COVID-19 on the coal industry. Fitch states the pandemic could cause a decline in coal demand through the remainder of 2020.
However, this bond is just one of four debt products that are due before the end of 2022. These are:
- A$100m senior secured notes (bonds) due May 2020. Sole Lead Arranger: FIIG Securities Limited.
- A$170m loan arranged by CommBank and Westpac, due Nov 2020
- US$140 million Series A guaranteed senior secured notes (bonds) due September 2021 (the one that Adani put off refinancing last month)
- US$500 million Guaranteed Senior Secured Notes (bonds) due Dec 2022.
What happens if Adani can’t refinance Abbot Point debt?
The Fitch article says Adani would use the Group’s funds to pay off the debt if it cannot be refinanced, and would do this for both of the senior secured notes. Adani has since confirmed to the Australian Financial Review it will pay off the $100 million bond due in May 2020. It is not clear whether Adani has the same intentions for the bank loan due in November.
Both CommBank and Westpac have ruled out financing the Carmichael project, along with 36 other major banks and bond arrangers. So considering that Abbot Point is directly linked to the Carmichael project as the export terminal the coal will pass through, and that as Fitch notes: “Adani Mining has signed a contract [with Abbot Point] for 9.3mtpa beginning 2023 to service its Carmichael Mine that is under development in the Galilee Basin”, it is unlikely that these banks would assist any further. The argument that financing Abbot Point is financing the Carmichael mine is clearer than ever before.
So if Adani chooses to (or is forced to) repay all these debts, that’s over a billion Australian dollars that is coming out of the Adani Group.
What would it mean for Adani’s financial capacity and the ability to fund work at Carmichael?
Aside from the fact that we’re talking about a billion dollars that Adani can’t use to fund the $2 billion mine and rail project, it’s worth putting this in context of the Adani Family, and Adani Group’s deteriorating financial position. In the last two months, Gautam Adani’s wealth has been reported as having fallen by 37% (or US$6 billion). On top of that, the Adani family has had to put another US$1.4 billion of collateral into various group companies as security against loans. Adani Enterprises’ share price has fallen by about half since February, Adani Ports is down by a third.
Given that Adani’s plan is to finance the mine and rail project using the group’s own resources, you have to wonder how viable this is when the value of the group is down, companies and their assets are struggling to secure and placate creditors, the family itself is pouring money in to stabilise the companies and the group might have to stump up another half a billion dollars to pay back debt on Abbot Point.
Last year Professor Sandra van der Laan at the University of Sydney described the Adani Group as a corporate collapsewaiting to happen. She thinks Adani is a house of cards and COVID-19 is a pretty big gust of wind.
Will COVID-19 and its impacts on the Adani group and its assets be enough to finally convince Adani to walk away from the disastrous Carmichael project? Time, and the appetite of lenders and investors to wade into the biggest environmental battle in Australia’s history in the midst of the climate crisis, will tell.