Adani cements giant M&A debt

Asia’s richest man, Gautam Adani, is causing a stir in debt markets with at least $6.6 billion in funding for his conglomerate’s planned purchase of a controlling stake in the business cement plants of the Swiss building materials company Holcim in India.

Adani Group will have to tap into every conceivable source of cash for funding, India’s biggest M&A loan, at a time when turmoil has gripped global financial markets.

“Adani has the daunting task of financing this acquisition at a time when global financial markets are volatile and risk aversion is paramount,” said a senior banker in Hong Kong. “The successful financing of what is a significant acquisition will cement his place in India Inc’s Hall of Fame and set a model for others to follow.”

Adani is no stranger to the M&A game. Last October, Adani Green Energy acquired SoftBank-backed SB Energy Holdings in a deal valued at US$3.5 billion, the largest acquisition in the renewable energy sector in India, which it financed by internal accruals. It also raised a 72.5 billion rupiah ($1 billion) bridge loan from three banks to fund Adani Airport Holding’s acquisition of a 74% stake in Mumbai International Airport, which has was finalized last July.

While both were domestic deals and had an onshore financing structure – at least initially – Adani’s latest giant acquisition features offshore construction. Adani family offshore special purpose vehicle is the buyer of the 63.19% stake that Holcim holds – through an offshore vehicle – in the Mumbai-listed company Ambuja cementswhich in turn holds a 50.05% stake in VAC, another listed cement company. Holcim directly owns another 4.48% stake in the latter.

Holcim would receive nearly $6.4 billion for stakes in the two Mumbai-listed companies. Adani said he would acquire more shares through an open offering, which could bring the total consideration to $10.5 billion.

Funding mix

Barclays, German Bank and Standard charter have provided underwritten commitments and are leading the latest U.S. dollar-denominated debt financing, which includes a combination of senior and junior bridge and term loans for Endeavor Trade and Investmentthe offshore SPV of the Adani family incorporated in Mauritius.

Other banks are expected to be added to the underwriting group in the coming weeks. However, Indian banks and financial institutions will be left out as they are prohibited from financing an offshore entity’s acquisition of shares in an Indian company.

This contrasts with another major acquisition funding from India – a US$1.2 billion loan backing the purchase of assets from US firm Viatris by Biocon organic products, a subsidiary of the Indian pharmaceutical company Biocon. The loan is expected to attract a good response from Indian banks.

Adani herself got strong backing from StanChart and the State Bank of India when her port operations arm Mundra Port & Special Economic Zone borrowed US$2 billion through a bridge loan to finance the acquisition of the Abbot Point coal terminal in Queensland, Australia, in 2011.

coal issue

Environmental concerns could challenge Adani’s latest funding – a hurdle she is struggling to overcome for her controversial Carmichael coal mine in Queensland. Adani faced a years-long campaign by climate activists against the development of the thermal coal mine and resistance from lenders to fund the project, following which he scaled back his plans.

“Cement may not immediately trigger environmental concerns like coal does, but some lenders may be picky given that these issues will always arise with the larger group,” said a banker in Singapore.

Another lending banker countered, “Adani has also made efforts to improve its environmental credentials through green and ESG financing. Financiers have not stopped lending to major oil companies such as BP, ExxonMobil, Shell and TotalEnergies.

The size of the debt will depend on the success of general offers for additional 26% stakes in Ambuja Cements and ACC, which are both debt-free companies.

As of December 31, Ambuja Cements’ standalone cash balance was 39.85 billion rupees ($513 million), while that of ACC was 72.47 billion rupees.

“Both targets have ample liquidity on their balance sheets and also generate stable cash flows that can be leveraged,” said a senior loan banker in Singapore. “This should allay any concerns potential lenders may have about the risks of lending at this particular event. Additionally, the ancillary business opportunities such as capital markets buyouts that are likely to follow make this financing an attractive proposition.

The acquisition, which will make Adani Group the second largest cement producer in the country, is expected to be finalized in the second half of 2022.

If Adani raises more than $7.5 billion – the initial size of funding Bharti Airtel raised in 2010 to acquire the African assets of Kuwaiti group Zain – it will become Asia’s sixth-largest M&A loan (excluding Japan). ), according to Refinitiv LPC data.

Past lessons

Adani would do well to learn from the experiences of Bharti and Vedanta Resources, which raised India’s two biggest M&A loans under difficult circumstances.

In November 2010, Bharti finalized its loan for the purchase of Zain’s African cellular assets at US$6.605 billion after 11 underwriters first pre-funded the US$7.5 billion loan in June. SBI, one of the underwriters, took a final take of $500 million and also provided the equivalent of another $1 billion via a tranche of rupees.

The US$6.605 billion funding successfully raised a combined US$955 million from seven other banks joining the syndication. The loan was concluded after a prepayment of $895 million from the borrower and nine months after the Indian telecommunications company confirmed the acquisition in February 2010. The financing had to endure the fallout from the crisis of the eurozone which eventually saw several European lenders pull out. from Asia to their markets of origin.

In August 2011, Vedanta raised $5.37 billion in loans to buy a 40% stake in Cairn India. The loan included a $2.97 billion syndication portion, a $1.5 billion bridge loan facility, which was refinanced in May with a $1.65 billion bond, and a $900 million bridge loan.

The syndicated portion comprising an 18-month, $1.57 billion bridge loan tranche A and a three-year, $1.4 billion term loan tranche B, attracted the participation of five banks in the syndication senior, while general syndication has not been launched. Only one senior bank and one more among the eight OMLABs were European. Some European banks stayed away because they were concerned about environmental issues related to Vedanta’s operations.

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