Adani Group's bonds have risen following the announcement that Adani Ports & Special Economic Zone Ltd. plans to buy back up to $130 million of its July 2024 bonds and similar amounts in each of the next four quarters. The move comes as the group tries to regain investor confidence after a short seller report by Hindenburg Research in January pounded its bonds and shares.
The buyback will be a measured effort by Adani Ports to maintain its liquidity position and comfort investors. It is also part of the group's larger strategy to trim capital spending and prepay debt, which should alleviate refinancing concerns ahead of major maturities in 2024.
However, concerns remain about the $6 billion worth of Adani bonds that face the risk of being downgraded to high-yield debt, known as fallen-angel risk. Despite this, Adani Ports' strong cash flows mean that it might be less pressured than the group's utilities firms.
The buyback has been well received by investors, with 10 out of 15 dollar-denominated notes of Adani Group companies tracked by Bloomberg rising in price as of 11:27 a.m. in Hong Kong on Monday. Adani Ports' July 2024 3.375% senior debt saw the biggest gain, rising by 0.69 cents on the dollar, the largest advance in a month.
The move to reduce capital spending and prepay debt may impede Adani Ports' ability to boost earnings growth via infrastructure expansion and M&A. However, it should enable the company to maintain its revised capital spending target of 40 billion to 45 billion rupees ($548 million) in the current fiscal year, according to Bloomberg Intelligence.
In summary, Adani Ports' buyback plan is a measured effort to regain investor confidence and maintain its liquidity position. While concerns about fallen-angel risk remain, the move to reduce capital spending and prepay debt should alleviate refinancing concerns ahead of major maturities in 2024.
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