Professor: Adani on verge of collapse

Via the ABC:

Professor Sandra van der Laan casts her eyes over the complex corporate structure for Adani’s Australian operations.

“It looks to me like a corporate collapse waiting to happen,” she says.

“It has all the hallmarks of the big corporate failures we’ve seen over the last 20 to 30 years.”

Professor van der Laan, a forensic accounting specialist who heads the discipline of finance at the University of Sydney, has a reputation for picking “corporate collapses waiting to happen”.

A decade ago, she and fellow academic Sue Newberry warned that ABC Learning — then Australia’s biggest private childcare provider and the largest publicly listed childcare company in the world — was a house of cards.

It subsequently failed in spectacular fashion, causing a crisis in the industry.

She examines a diagram of Adani’s Australian structure: a labyrinth of trusts interposed between private companies and Indian stock market-listed companies with ties to, and in some cases ownership in, tax havens stretching from Singapore to Mauritius, on to the Cayman Islands and the British Virgin Islands.

“The structure of Adani seems to be developed to obfuscate or confuse or to hide things,” she says.

The more immediate concern is Adani Mining Pty Ltd, the Australian-registered company which is the proponent of the Carmichael coal mine in the Galilee Basin.

Adani Mining recently provided ASIC with its financial accounts to March 31.

As a private company, the subsidiary is only required to release reduced financial statements with limited detail — but enough to raise red flags for Professor van der Laan and other critics.

The accounts show the owners have contributed less than $9 million in equity to the business and total liabilities exceed total assets by more than half a billion dollars.

Current assets of less than $30 million are swamped by current liabilities, due over the next 12 months, of more than $1.8 billion.

“Adani Mining is in a very fragile, even perilous, financial position,” Professor van der Laan observes.

“The gap between the current assets and liabilities is what’s really concerning.

The liabilities are largely made up of an inter-company loan from the immediate parent company, Adani Global Pte Ltd, incorporated in Singapore and controlled by the Adani family.

Creditors left relying on Adani parent’s assurances

Auditors Ernst & Young signed off on the accounts of Adani Mining on the basis that the company is a going concern.

But the auditors only did so on the assurance of Adani Mining’s directors that the ultimate parent company, the Indian-listed Adani Enterprises Ltd, would “provide financial support for at least 12 months” and not call in loans or other amounts owing if this would leave Adani Mining unable to meet debts “for a period not less than 12 months from the date of these financial statements”.

Adani Mining was also required to indemnify the auditors for an unspecified amount against legal claims arising from the audit, a practice that is not unusual with private companies.

Officially, Adani Mining’s financial statements are “general purpose” accounts meant to serve as a guide to creditors and other stakeholders, yet the auditors expressly warn these parties not to rely on their opinion.

“Our report is intended solely for Adani Mining Pty Ltd and its members and should not be used by parties other than Adani Mining Pty Ltd and its members,” Ernst & Young state.

Cold comfort for those doing business with Adani Mining.

In a written response to questions from the ABC, Adani Australia described the comments about its financial position as false and misleading.

It said that over nine years of operating in Australia its contractors, employees, consultants and other business partners have been paid and that its “accounts are annually audited and tested for matters such as insolvency and assessed against other financial responsibilities and accountabilities”.

“Just like every mining project, our project will not generate income until the mine and rail are built and operating and coal can be sold and exported,” it said.

“Until we start producing and selling coal, we will be continuing to invest in the development of the mine and rail and therefore this will be treated as an accounting loss.”

Professor van der Laan responds: “You would expect a mining company to be in a slightly difficult position while they are going through the early years of the exploration and development stage, but the scale of this is what’s astounding.”

‘Adani Power hasn’t made money for a decade’

The financial position of the company that is meant to be buying the coal from Adani’s coal mine in Queensland’s Galilee Basin also raises concerns.

The coal is likely destined for power stations in India owned by Adani Power Ltd, listed on the Bombay Stock Exchange but controlled by the Adani family.

It released its latest accounts this month. Adani Power is highly leveraged with daunting debt — on current exchange rates, about $US7 billion net, or $10 billion — and thin earnings by comparison.

“Adani Power’s financial position is perilous,” says Professor van der Laan.

“They’re not generating enough revenue to cover their interest payments, let alone repay their debt.”

It’s a view shared by research analysts at Credit Suisse. For years, they’ve classified Adani Power as a “house of debt” with insufficient earnings to cover its interest bill.

The poor financial position of Adani Power may be one reason why Adani has failed to find a bank anywhere that is willing to finance the Carmichael coal mine, argues Tim Buckley, research director of the Institute for Energy Economics and Financial Analysis, a philanthropically-funded body which promotes a transition to sustainable energy.

“One of the key things an external investor or financial institution would require is that you have an off-taker [for the coal] that is solvent,” says Mr Buckley, a former investment banker who has been analysing company accounts for more than 30 years.

Adani Power’s latest financial statements were qualified by its auditors, who raised red flags about directors’ expectations that Adani Power would recoup loans and interest from a bankrupt and non-operational power station business and that its troubled Mundra Power Station would become profitable.

“They are receiving audit opinions that their financial controls are not adequate and so their accounts could contain material misstatements,” says Professor van der Laan, who described this as extremely worrying.

“It’s very rare to see a company with a qualified audit opinion, very rare. Generally, you don’t see a lot of qualified audit opinions because companies fail before they are issued.”

But don’t imagine the receivers will be called in soon.

Indian banks are notoriously reluctant to rein in poorly performing loans and Adani Power continues to expand. Despite the concerns about its finances, it’s currently buying two Indian power stations that have gone broke, all with the backing of an Indian banking conglomerate.

‘They will never pay any material corporate tax in Australia’

Adani is now going it alone and “self-funding” the Carmichael mine after failing to secure loans from banks or government wealth funds.

Although the mine has been scaled down to an initial 10 million tonnes a year output, rather than the mega-mine of 60 million tonnes a year it has approval for, the price tag for building it and an accompanying railway will still be a multi-billion-dollar sum.

Even for a man as rich as family patriarch Gautam Adani, it is no small ask.

But in the tangled web that is the Adani Group, there are ways.

Adani’s ports business is the most profitable part of the empire, headed by the Bombay stock exchange-listed company Adani Ports SEZ.

It is currently raising more than $1 billion in debt on global markets.

Critics are suspicious that Adani may channel the money through its opaque corporate structure and use the money to fund the Queensland coal mine that no bank was willing to finance.

“Historic precedent says [Adani has] ongoing intercompany transactions and transfers of assets and liabilities between various listed subsidiaries,” says Tim Buckley.

“My take is that the money will come into Adani Ports and quite easily be routed back up to the Adani family and then the Adani family will invest it in Adani Enterprises [the ultimate parent company for Adani Mining] and then Adani Enterprises will shift the money across to Australia. A bit of a round robin.”

Investors, analysts and ratings agencies have expressed concern about the Adani Group’s propensity to shift assets and liabilities between companies in a less-than-transparent manner or on questionable terms.

“The concerns that they may be raising money in the port business to fund the Carmichael mine are very legitimate, we’ve seen this kind of thing before,” Professor van der Laan says.

Whether or not concerns about the solvency of various Adani companies or funding for the Carmichael mine are well-founded, the promise of a company tax bonanza from the Queensland mine seems destined to remain unfulfilled, according to Tim Buckley.

Already, accumulated losses mean that, if the mine is built, Adani Mining won’t pay company tax for many years in Australia and may never do so — like the Abbot Point Coal Terminal, which has paid little to no company tax under the ownership of Adani.

“They have carry forward losses that mean the first $1.5 billion of profit are corporate tax free,” says Mr Buckley.

“My surmise is that they will never pay any material corporate tax in Australia.”

Comments

  1. DouglasMEMBER

    Ms van de Laan should also have a look at Gupta (GFG) who are in with Garnaut and have been implicated in unsustainable financial engineering by the FT

  2. Yes, but the LNP say it’s worth it for a few hundred jerbs. Anyhow, we give away Aussie peoples assets to private companies virtually for free all the time, it’s what we do. You can’t put a monetary value on virtue signaling.

    • I’m looking forward to all of the contract opportunities now coming out of Adani. Lots of jobs and economic activity will be supported. This woman is either a biased extremist and global warming fantasist or she’s too dumb to understand how corporate structures end up being the way they are. Probably both in fact. Adani is coming by democratic demand and there’s not a thing the economic terrorists and anti-democrats can do to stop it.

  3. david collyerMEMBER

    The whole Adani imbroglio is a laughable demonstration of how Australia reconciles competing interests, then lets the economics determine the outcome.

    The coal-kissing federal government wants to ‘let ‘er rip’ because of their blinkered ideology and desire for the capex and activity boost. The Qld government doesn’t want it because thermal coal is filthy, in terminal decline, and will be left with yet another mine site remediation task. Qld waved through the permits to placate dumb voters desperate for development and jobs to lift central Qld land values. The activists who burned petrol driving to the mine site and wore out shoe leather asserting their opinions to bemused and disgusted locals wasted their time and changed no minds.

    Adani’s dubious financing aside, coal electricity generation has no future. It is being thrashed on cost by renewables, and this differential continues to widen on continued innovation. The exact composition of future electricity generating kit is an open question, notably around production when the sun don’t shine and the wind don’t blow. Today, it looks like a mix of solar, wind, pumped hydro, batteries and OCGT.

    The Adani mine will never be built.

    • David you dill
      The Qld government doesn’t want it because thermal coal is filthy – They certainly want the 4 – 5 billion in royalties each year!

      “Qld waved through the permits to placate dumb voters desperate for development and jobs to lift central Qld land values” – Dumb voters who know the facts and are not taken in by the greens transparent attempts to discredit Adani – perhaps you should read the 2011 leaked greens document “stopping the Australian coal export boom” its on the web if you look for it

      “The activists who burned petrol driving to the mine site and wore out shoe leather asserting their opinions to bemused and disgusted locals wasted their time and changed no minds” – Actually these clueless morons did more to galvanize support for the coal industry than you can imagine, what a landslide, they changed 10′ of thousands of minds I would say

    • steflukeMEMBER

      Maybe. ‘Thrashed by renewables’ goes a bit far for me – renewables benefit declines as their share increases and there is a crossover. At some stage more renewables isn’t rational, they can’t do it all.

      As far as i know, grid scale storage is still prohibitive, and even the best tech can’t scale to do the whole job. So really coal’s fight is with gas, if there isn’t enough gas then coal will have some role. Unless nuclear takes the space.

  4. Ahhh the impartial ABC, got to admire there never say die attitude, Give it up the mine is gong ahead, Try to stick to your charter for a change and report factual based stories
    Adan’s response below
    Claims regarding the Adani Group’s financial position by Professor Sandra van der Laan and IEEFA to the ABC are false and misleading. The claims misrepresent Adani’s financial accounts in an attempt to discredit our business in what is nothing more than a smear campaign

    Despite requesting advice from the ABC as to the source of their story and on what basis they were
    making misleading allegations, the ABC would not provide that information or further context in order
    for us to fully respond.
    It was not until we had provided our statement that they were willing to provide further context and partial advice on their source.
    Adani has been operating successfully in Australia for nine years and has invested more than $3.6 billion into the Australian economy during that time.
    Over nine years our contractors, employees, consultants and other business partners have been paid.
    Our operations here are Australian businesses, operating under Australian financial regulations and
    taxation legislation.
    Like other Australian businesses, our accounts are annually audited and tested for matters such as insolvency and assessed against other financial responsibilities and accountabilities.

    Like other Australian companies Adani Mining is required to report its balance sheet to ASIC under
    Australian law, and our balance sheet has been publicly available for the past eight years for people
    to view.

    Just like every mining project, our project will not generate income until the mine and rail are built
    and operating and coal can be sold and exported .
    Until we start producing and selling coal, we will be continuing to invest in the development
    of the mine and rail and therefore this will be treated as an accounting loss.

    With Adani’s approvals for construction now in place, construction on the Carmichael mine and rail
    Project is progressing well. The construction stage is due for completion approximately two years
    after approvals were received, and production of coal will shortly follow.
    The investment in the delivery of the Carmichael Project was always expected to be a long term
    investment, which is why Adani has remained committed to the Project.

    Already Adani’s businesses in Australia have had major impacts on the Queensland economy,
    through its ownership and operation of Abbot Point Port Terminal, Adani Renewables’ solar farm in
    Rugby Run, and now with the delivery of the Carmichael Project.

    Adani looks forward to continuing its operations and the significant financial contribution it makes
    to the Australian economy over the coming years.
    ”We expect anticoal activists will continue their attempts to discredit and misrepresent our organisation
    and operations. Despite this we will deliver our Carmichael Project and the benefits it
    will bring to regional Queensland communities.”

    • Never mind all that nonsense from Adani. That’s the sort of flatulent corporate bloviation one would expect from them as a matter of course. On the other hand, If Dr Sandra is to be believed…

      Current assets of less than $30 million are swamped by current liabilities, due over the next 12 months, of more than $1.8 billion

      ….well, that sounds like a real, factual problem.

      And…

      It’s a view shared by research analysts at Credit Suisse. For years, they’ve classified Adani Power as a “house of debt” with insufficient earnings to cover its interest bill.

      …having those guys make a call like that doesn’t make the future sound real glowing either.

      As I said below, this evolution is a giant scam designed to extract money, not coal, from Australia.

      • jollyrodger YOU IDIOT – “Really, they want the $1B in NAIF funds transfer it to Bermuda and then sell the site” – What NAIF loan would that be, the NAIF loan was rulled out over a year ago, you should get out more and you might have known THERE IS NO NAIF loan, better loosen your foil hat, its obviously on too tight!!

  5. The Adani mine is nothing but a big scam. If they really want lignite for their power stations, it is cheaper to buy it from Indonesia. Really, they want the $1B in NAIF funds transfer it to Bermuda and then sell the site.

    • jollyrodger YOU IDIOT – “Really, they want the $1B in NAIF funds transfer it to Bermuda and then sell the site” – What NAIF loan would that be, the NAIF loan was rulled out over a year ago, you should get out more and you might have known THERE IS NO NAIF loan, better loosen your foil hat, its obviously on too tight!!

      • If you can’t see it as a giant scam as most people can, then there is no helping you. Why would anyone buy lignite from a high cost country when it is cheaper from Indonesia? The project does not stack up financially unless there are massive subsidies and this has been mentioned countless times on this site.

        NAIF funds ruled out last year are only electioneering. Another six months of lobbying and funds will be on the table.

  6. It’s all a giant corrupt wheeze. I know this because it’s run by Indians, and that’s how they do things. Any suggestion otherwise is deluded.

    It might produce coal or something, but that would be a side effect, not the object of the exercise.

  7. A lot of the mining service companies don’t want to work with the project due to concerns surrounding the solvency of the Australian company. The good professor is correct in his analysis despite the Adani Astro surfer above’s comment.

    • Fair suck of the sauce bottle, it’s nice to have a troll who is not wu mao or retarded.

      • Sorry John, I don’t understand if you are calling me a troll or not. I work in a major engineering services company. Just imparting what I have heard. Those that are working on it are working on a “if I get paid I will work” but are nervous.

      • @SP absolutely not, sorry my comment was a bit oblique referring to the random professional posters we attract around here.

      • Ah cool. I thought I was probably misunderstanding it. Yes there are some interesting professional posters on this site at times. I also value their input as their employers have an opinion or position to put forward. It is usually quite obvious when they are and are pointed out like you have quite quickly as biased to a particular commercial point of view

  8. I’ll admit up front that I know zero about coal mining but that said I know a LOT about big project development.
    What every big project has in common is that the cash-flow is all negative during the development phase and only begins to look a little less negative when you start to ship product. Positive cashflow is something that only happens in the latter years of a project. That my friends is big project finance 101
    Every accounting analysis that is focused on project cashflow and derived things like quick-ratios has completely failed to understand big project finance 101.
    Maybe Adani is dead, maybe it’s not, but one thing is certain this is the wrong way to figure it out.