)
The Adani group is working on the financial closure of its Australian coal mining project, which needs investments of $8 billion and is facing local environmental protests.
Analysts said capital expenditure for the Galilee mine in Queensland would start soon and Adani Enterprises would invest $3 billion in the next four years apart from the $1 billion it already had. The project comprises a mine, a railway and a port. The total investment in the project will be around $16 billion, making it biggest mine development in history.
The Adani group’s recent equity restructuring has made it easier to raise loans at favourable rates.
The Adanis’ private entities and Korea’s POSCO, which will build the railway, will spend $1.5 billion on the port $2.5 billion on the railway, according to analysts with Axis Capital. “This (equity restructuring of the Adani group) could be a precursor for the promoters to monetise part of the holding in the port business to support the power and mining businesses,” said an analyst with Axis Capital.
The Australian project is the most ambitious one by Gautam Adani, the Adani group’s promoter. With a pro-business government at the Centre led by Prime Minister Narendra Modi, the group is expected to tie up funds for the project soon. The State Bank of India promised $1 billion after most other banks refused to lend for the Queensland project.
The coal mine is being opposed by locals and environmentalists who claim the project is not only uneconomical but also not conducive to the environment. The Guardian reported on Monday a new Labour government in Queensland had backed out of investing $450 million in the railway. The Labour party also said it would not fund dredging at the Abbot Point port unless the Adani group demonstrated the project was viable.
An Adani spokesperson told The Guardian the company was “committed to proceeding with its mine, rail and port projects that are key to opening up the Galilee Basin”.
The Adani group is now in a better position to start work on the project. In the last one year, the group’s market capitalisation has climbed 134 per cent to Rs 154,622 crore. Last week’s equity restructuring had worked in favour of shareholders, analysts said.
However, Tim Buckley, director of energy finance studies for the Institute of Energy Economics and Financial Analysis, said Adani would most likely exit the Australian project by the middle of 2015 and invest in the opportunities the Indian government was presenting in wind, solar and grid transmission within India.
Equity recast is good: CLSA, Morgan Stanley
The demerger plan of Adani Enterprises has received a thumbs-up from global brokerage firm CLSA and Morgan Stanley. CLSA said Adani’s plans to demerge its businesses into four listed entities would create value by eliminating the holding company discount and bringing focus on some of its under-appreciated businesses. The brokerage sees a 20 per cent upside to the Adani Enterprises share price after the demerger and has set a target price of Rs 750 a share. On Monday, Adani Enterprises shares closed four per cent up at Rs 654 a share. Morgan Stanley said with the restructuring, the five per cent holding company discount implied in Adani Enterprises's stock based on the January 30 closing prices of the three companies would reduce further, if not disappear. Also, it said it was not allocating any value to the transmission business at the moment, and the spin-off could lead to additional value creation for shareholders.
