Adani refinances $3.7 bn loan in Ambuja, ACC deal

By Chicago 6 Min Read

Mumbai: Gautam Adani-led Adani Group has entered into a $3.7 billion refinance agreement with a consortium of at least 20 foreign banks, the largest such deal in the cement industry.

Two people with direct knowledge of the matter confirmed this, adding the move will not only help Adani Group repay the entire loan taken for acquiring Ambuja Cements Ltd and ACC Ltd, but may also reduce the group’s cost of capital. The consortium includes Deutsche Bank AG, Standard Chartered Bank plc, Barclays plc, Citibank NA, MUFG Bank Ltd, Sumitomo Mitsui Banking Corp and other lenders, the two people said.

The refinance deal may enhance the group’s credit rating and strengthen its ability to acquire other cement firms, in sync with the group’s ambition to beat Ultratech Cement Ltd to become the country’s largest cement maker doubling its capacity to 140 mtpa by 2027.

This is a key part of the revived capex plan at Adani Group which, earlier this year, suffered a $150 billion wealth wipe-out at one point following a negative report by US-based short-seller Hindenburg Research on 24 January.

On 13 September, Bloomberg reported that the Adani Group is in talks with banks to refinance debt taken on to fund its purchase of Ambuja Cements Ltd, with lenders divided into three categories in what could be one of Asia’s largest syndicated loan deals of the year.

In August 2022, Adani Group acquired Ambuja Cements and ACC for $6.5 billion, of which $2 billion was financed via equity.

A $4.5 billion debt obligation arose out of the bridge loan that was secured by the Adani Group from a consortium of 14 banks to acquire the two cement companies.

“Of this, at least $700 million has already been repaid by the promoters,” one of the two people said on condition of anonymity.

According to the two people, apart from the 14 existing banks, at least six new foreign banks have joined to form the 20-member consortium.

Spokespersons from Deutsche Bank, Standard Chartered Bank, Citibank NA and Barclays declined to comment on the refinance deal.

“Since the rate of interest is lower, the latest refinance deal will reduce the group’s cost of capital,” said the first person. “The bridge loan for the acquisition was availed for a tenure of 18-24 months at an interest rate of up to 6.5%. The latest $3.7 billion refinance deal, which is meant to repay the bridge loan, will be availed at a lower interest rate of 6.24%,” said the first person, adding the lower interest cost will not only enhance the credit rating but also save around ₹2,500 crore for Adani’s cement firms every year.

“The tenure of the refinance will be 36 months,” said the first person.

Alongside, Ambuja Cements and ACC together generate around $1 billion in cash every year.

“These two factors together will help Adani Group in its mega-inorganic growth plan,” said the first person.

In August, Adani Group-owned Ambuja Cements acquired a 56.74% stake in Gujarat-based cement-maker Sanghi Industries Ltd, valuing the latter at ₹5,000 crore. “After the refinance deal, Adani Group may acquire another mid-size cement-making firm in the next six-nine months which will increase the existing capacity of its cements business to close to 100mtpa,” said the first person.

On 4 October, a report by The Hindu Business Line said Adani Cement may join the race along with Parth Jindal-led JSW Cement to acquire Heidelberg Cement India, which has a capacity of 14 mtpa.

JP Morgan India Pvt. Ltd on 2 August said in a report that Adani has estimated a 17% sales volume CAGR in the 2023-28 period.

“While the vision and growth targets are impressive, the reduction in cash balances at ACC-Ambuja Cements, and the acquisition debt at the parent holding company, means that how ACC-Ambuja Cements would fund the aggressive capex needs to be seen,” the report said.

Since the latest refinance deal will bring a large part of Adani group’s overall debt under a lower rate regime, the group’s overall credit-worthiness and the leverage ratio may improve, said the second person, adding that at least 40% of the cement manufacturing process by Ambuja Cements and ACC will be ESG compliant and non-clinker dependent, which may further enhance the two cement firms’ credit rating. “….the large order placement (by Ambuja Cements) is a positive sign and highlights the seriousness of Ambuja Cement’s capacity plans,” said JP Morgan.

As of 31 March, 2023, Adani Group’s gross debt stood at and cash position in the book was at over ₹60,000 crore.

An MUFG spokesperson declined to comment.

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