With India’s Supreme Court on Wednesday ordering Adani Enterprises to “deleverage” its books for the last three years, reversing the gains in revenues and profits it received from compensatory tariffs for its Mundra project, analysts are saying it looks like Adani will be back in the loss column.
Adani Enterprises is the parent company of Adani Mining, the owners of Australia’s Carmichael coal mine. And the hit to the parent company was serious, with Adani stock dropping 20 percent on Wednesday, with losses for a combined market value of Rs 5,498 crore in a single day.
This news, coupled with a less than positive report from the IEEFA, leaves everyone wondering why in the world the Australian government would want to lend the struggling mining company $1.0 billion worth of taxpayer money via the Northern Australia Infrastructure Facility (NAIF).
The news also comes just a week after former Liberal party leader John Hewson warned that the Carmichael Mine was nothing more than a “stranded asset,” and a $1 billion loan was the last thing the Turnbull government should be considering, according to The Guardian.
One particular aspect of the IEEFA report stands out: “with a market capitalization of just US$1.9 billion, net debt of US$2.5 billion, and a wide range of expansion projects across multiple industry sectors, Adani Enterprises is not in a strong financial position. Without a major new equity raising for the project, Adani may attempt to finance the Carmichael mine entirely by debt, a high-risk option for shareholders and lenders alike.”
The report also points out that the Carmichael Mine is at odds with India’s energy strategy. The IEEFA report cites India’s Energy Minister, Piyush Goyal, who has stated repeatedly that “it is government policy to cease thermal coal imports—a policy that brings into question the very point of the proposed mine. Progress toward this goal is well underway with coal imports dropping 22-25 percent year on year in the last two reported months.”
And last, but not least, the IEEFA report points out that with the Carmichael Mine already holding debt of over $1.0 billion against secured shareholder’s equity of $2.5 billion, it would take an additional investment of $5.3 billion to get the project operational. So why in the world would anyone want to take on a negative investment?