New Delhi: The Opposition’s fresh round of campaign against Prime Minister Narendra Modi on the basis of the hammering of the stocks of the Adani Group after Hindenburg Research accused it of fraud may take it nowhere.
A quick assessment done by the top echelons of the government have concluded that the political fallout of the issue has been largely over estimated by the detractors of Modi.
With the Adani group calling off the Rs 20,000 crore share sale and the Life Insurance Corporation (LIC) and the State Bank of India (SBI), two major state investors, concluding that their exposure had not suffered a hit, Modi’s position remains unassailed.
Basically, their conclusion is that the Adani group’s stock rout is about valuation and not insolvency. They do not fear any threat to the investment by government-run institutions and regulators like the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI).
Nirmala Sitharaman, India’s Finance Minister has already addressed the Adani issue, which led to the cancellation of India’s biggest FPO ever, by asserting that macroeconomic fundamentals and national image haven’t been affected. She cited the inflow of forex reserves, to prove that India’s reputation as a market is intact on the global scale.
She has also underlined that regulators are addressing the Adani stock fall independently, saying that “the RBI made statement. Prior to that, LIC explained their exposure (to Adani group). The regulators, who are independent of the government, are free to do what is appropriate.”
The LIC clarified that its investment in Adani group companies is merely one percent of its total capital market investment. Even if Adani group’s market capitalization declines to zero, the LIC will not face a financial loss. The LIC invested Rs 30,127 crore in Adani group companies, whose market value was Rs 56,142 crore as on February 1.
The SBI said it has given $ 2.6 billion ( Rs 21,000 crore) loan to Adani group companies, but till now, the Adani group has not made any default in loan repayments. On the basis of Adani group’s capital assets pledged as guarantee, the SBI’s investments are secure. The Punjab National Bank said it gave Rs 7,000 crore loan to the Adani group.
Therefore, one estimate is that if all the loans of Indian and international banks are taken into account, it won’t be more than the total value of the Adani’s personal properties. That is because the Adani group has adequate cash flow, and in the last several years, the group’s earnings have been more than its loans.
There is a reason: the Adani group owns collateral assets like Gangavaram, Mundhra and Hazira ports. In Vizhinjam, Kerala, the Adani group is building a deep water port, which when ready will be like the ports of Singapore and Colombo. The Adani group’s thermal power units generate 13,500 MW, most of which come under the clean energy category.
The group has the capacity to generate 650 MW solar power. Its 18,000 circuit km transmission lines and 30,000 MVA transfer capacity is Asia’s largest.
Besides, the Adani group owns six airports, apart from its partnership in Mumbai airport. Navi Mumbai airport that will be inaugurated in 2025 will be operated by the Adani group.Two top cement companies, ACC and Ambuja Cement, are under its control. The Adani group owns coal mines in Australia that supply high-grade coal to power plants not only in India but also to African and South American countries. It owns ships too to carry coal. India, it partners with the NTPC’s under construction solar and wind energy plants.
That is why the RBI allayed concerns over the exposure of lenders to the embattled Adani Group, stating that the country’s banking system remains resilient and stable. “Various parameters relating to capital adequacy, asset quality, liquidity, provision coverage and profitability are healthy. Banks are also in compliance with the Large Exposure Framework guidelines issued by the RBI,” the central bank said on February 3.
Of course, the Opposition thinks that they have the “golden opportunity” now to nail the PM, alleging that the rise of the Adani group is because of the so-called proximity to him.
Actually, the Adani group’s fortunes rose when prime minister Rajiv Gandhi was in power and Chimanbhai Patel was the chief minister of Gujarat. During P V Narasimha Rao’s rule, when the new economic liberalisation took place, the Adanis achieved tremendous growth.
As an expert pointed out, Adani’s turnover rose from Rs two crore networth to Rs 80,000 crore during Dr Manmohan Singh’s UPA rule. The Adani group has won projects to execute right from the time of Rajiv Gandhi to Manmohan Singh, Chimanbhai Patel, Uddhav Thackeray, Ashok Gehlot and even under Kerala’s CPI-M leader Pinarayi Vijayan.
Of course, one cannot deny that when Modi went for a mega infrastructure budget from the rapid growth of India, the Adani group picked up a number of projects, setting up ports, power plants and other projects through open bidding.
Next week may see both Houses of Parliament again in turmoil but the government has made up its mind to stay firm as it does not see any reason to be on the backfoot. The Opposition leaders are demanding discussion on what they called ‘financial irregularities’ in the sanction of loans from public sector banks to the Adani group in the light of Hindenburg research report, whose allegations have been stoutly denied by the group.
The Congress and other opposition leaders are pressing for setting up a Joint Parliamentary Committee to probe into the entire issue. The Congress is asking why the LIC and the SBI heavily invested in the Adani group shares. Countering the Congress, BJP leaders are asking why the Congress-ruled state governments went out of their way to invite the Adani group to invest in projects in their states in the last nine years.
So, the big question is whether the Adani issue is just a handy tool for the opposition to target Modi? Even before the Hindenburg research report, Congress leader Rahul Gandhi had been harping on the “Adani-Ambani” nexus, alleging that Modi is working to favour these two top industrialists. What if the Adani group’s growth story is not a bubble and remains afloat? As many market watchers say, the Adani group would bounce back, which may be in India’s interest.
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