The Adani Group has come under much criticism because of its complex corporate structure and weak governance. In 2023 it was the subject of criticism from research firm Hindenburg, however recent news from Securities and Exchange Board of India has been more positive. We expect Adani to engage investors for a potential capital raise in the near term.
Its Indian electricity provider AEML issued an SLB in 2021. Both KPIs are weakly structured in the context of a conglomerate with a track-record of poor governance. The first references emissions compared to EBITDA which is sensitive to inflation. The second uses renewables where intra-group PPA can influence the outcome. Unsurprisingly the targets are on track to be achieved, and so there is limited option value in the SLB pricing.
The use of an SLB presents the chance to make high-level sustainability improvements. In this situation, given any emissions-reducing activities are limited to a single subsidiary, the SLB’s function is more akin to a Use-of-Proceeds bond.
In addition, when considering the environmental record of the bond, the strategy of the full Group must be taken into account, in particular its significant reliance on coal that undermines its green credentials, which may indirectly be financed through the intra-group PPAs.