Adani Saga: Rise in overseas bond yields continue to spell bad news for Adani

Adani Group's large debt and alleged accounting issues have led to rising yields forcing bond prices to go down affecting bondholders negatively.

Gautam Adani, Chairman, The Adani Group
Gautam Adani, Chairman, The Adani Group

NH Economic Bureau

Media reports citing available data on Thursday indicated that since the Hindenburg Research raised worries about the Adani Group's high debt level and accounting issues, yields on it's overseas bonds had continued to rise, pointing to a secondary market sell-off of the instruments.

According to Bloomberg data, the yield on Adani Electricity Mumbai Infra's international bond increased to 9.2261 per cent on February 22 from 7.2451 percent on January 24. Bond yield for Adani Green Energy increased from 7.4802 percent on January 24 to 19.9714 per cent.

Bond yields for Adani Ports & Special Economic Zone and Adani International Container Terminal increased from 6.7 per cent and 5.693 per cent before the release of the Hindenburg report a month ago to 9.201 per cent and 6.943 per cent, respectively.

Due to the inverse relationship between bond yields and bond prices, rising bond yields are bad for bond holders. Current bond prices decrease when yields increase. Like to everything else in the secondary market, bond yields also depend on the supply and demand balance. Bond yields are inversely related to bond prices. For example, suppose you have a 5-year bond with a 5 per cent coupon rate and a face value of Rs 10,000. The bond will pay you Rs 500 in interest every year.

If market interest rates rise above 5 per cent, investors will no longer purchase your bonds and will instead purchase new ones with an interest rate above 5 per cent. Thus, you will need to reduce the price of your bond in order to boost its yield. Due to the decreased face value, the coupon rate increases when the price is reduced, hence boosting the bond's yield. This shows how bond yields fluctuate dependent on the prevailing market interest rate.

"With the Hindenburg report and the cancellation of the follow-on issue, there is a great deal of uncertainty in the market, as evidenced by the rise in overseas bond yields," moneycontrol reported Jyoti Prakash Gadia, managing director of Resurgent India, a merchant bank, as saying.

The report, citing Prime Dadabase, further states that the Adani Group has redemptions of Rs 90,000 crore, including offshore bonds and commercial paper, over the next few years.

"Although management is attempting to address the far-reaching consequences, the group must articulate clear and tangible initiatives to stabilise the market and rekindle investor enthusiasm," Gadia added.

According to various sources, the Adani Group hired banks last week to organise conversations with bond investors. The meetings, according to market participants, were convened to reassure bond investors. Nonetheless, there appears to be no effect on the bond yields of the group.

Earlier this week, Adani Ports paid Rs 1 billion to SBI Mutual Fund and Rs 500 million to Aditya Birla Sun Life Mutual Fund via commercial paper, Moneycontrol reported, citing media reports. The majority of investors in Adani Group bonds, according to bond dealers, will be in a wait-and-watch mode for future events.

In India, rising bond yields exert enormous pressure on existing interest rates, causing lending rates to increase. In the event of this to have happened in the country and not overseas bonds, the Reserve Bank of India (RBI) would have had to attempt to regulate bond yields and want to maintain them low to minimise the government's borrowing costs and restrict the increase in lending rates. Hence, rising bond yields in India could result in an increase in the government's and citizens' borrowing costs.

Meanwhile media reported that Nathan Anderson of Hindenburg had on Thursday asserted that Vinod Adani was the chief negotiator for the conglomerate's deals.

On Thursday, Anderson tweeted a Bloomberg article stating that it is now verified that Vinod Adani arranged financial transactions for the Adani Group and was a key player in the group's largest acquisition, despite his brother's denials that Vinod has an official function and is a related party.

According to the Bloomberg report, the seven unlisted businesses' corporate documents did not designate billionaire Gautam Adani as the ultimate beneficiary. In contrast, it was stated that their beneficial owners were his older brother Vinod and Vinod's wife Ranjanben.

The company's website revealed neither Vinod nor Ranjanben hold managerial positions in any of the listed Adani firms, nor are they among the stated top executives. Vinod, who is located in Dubai and claims to be a Cyprus national according to Adani Group's records, has been under scrutiny in recent weeks after the Hindenburg investigation alleged that he was a major negotiator in many of the group's projects.

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