Criticism of SBI-Adani MoU ill-informed: net loan may not exceed $200-400 mn

Yesterday (20 November), Congress General Secretary Ajay Maken addressed the media and criticised the State Bank of India’s ’loan’ of $1 billion to the Adani Group for the Carmichael coal mine project in Australia. In doing so, Maken and the Congress have missed some vital perspectives and context.

Maken first said that PM Narendra Modi appeared to be taking a keen interest in ‘promoting’ Adani in getting the loan worth Rs 6,200 crore. He then asked whether the SBI did the due diligence and on what conditions was the MoU done and what was the liability.

The basic fact is that, and it should have been obvious to anyone, there is no transaction between SBI and Adani that can be called a ’loan’ as of today and not even a paisa has been transferred to the Adani group.

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What happened earlier this week was a simple MoU between the two parties for an ‘in-principle’ approval of a credit facility of up to $1 billion. Vitally, this in-principle approval is subject to SBI’s detailed assessment of the coal mine project. This can be seen on Adani Group’s press release here which was published the very day.

Additionally, this TOI reportcites SBI chairperson Arundhati Bhattacharya as stating that this is not a loan sanction that SBI has given and that it will go through proper due diligence, both on the credit side and on the viability side, and a final call will be taken by the board before giving the loan.

Moreover, it is typical in the case of such in-principle approval that the disbursement schedule starts only after financial closure, i.e., tie-ups with banks/financial institutions are in place. Firstbiz had earlier quotedSBI chairperson as stating that until the project brings in equity, SBI will not step in. Additionally, the loan is conditional upon Adani Group repaying prior loans given by SBI to it amounting to almost 60-80 percent of the $1 billion amount. The net loan disbursed to Adani Group, therefore, would be in the range of $200-400 million and not $1 billion.

Therefore, for Maken and Congress to say Adani has already “got” the Rs 6,200 crore loan without waiting for the critical fine print is inaccurate and ill-informed. One wonders if the Opposition party did even the minimum due diligence before engaging in mindless criticism!

Maken’s next question was that when five top foreign banks had already declined to fund Adani’s project, what was the need and sense in giving a huge loan to the AdaniGroup from the hard-earned money deposited by the common people.

At the outset, it is, indeed, the case that there has been some skepticism in financing this project. This is something Adani Mining CEO Jeyakumar Janakaraj had reportedly told Reuters. At the same time, it seems that now the pieces are falling in place. Two aspects provide some indication.

In an NDTV debate, Adani Group CFO Ameet Desai stated, without giving details, that the next few days would see announcements about finalisation of funding agreements with some renowned names. Additionally, the Queensland government has also promised financial backing for an undisclosed sum. This ABC report saysthis amounts to “hundreds of millions of dollars”.

It is vital to reiterate here that SBI will not disburse even a paisa until sufficient equity is pumped in.

However, to understand how SBI has done deals in the past, it is useful to revisit one SBI transaction that happened during UPA’s tenure. It must be noted here that it is plainly silly to attribute what SBI does to the government of the day, but the only purpose of doing so is to highlight the sheer absurdity in Maken’s comment.

To fund Tata Steel’s $12.9 billion buyout of Anglo-Dutch steelmaker Corus Group, several banks were queuing up in early 2007. However, due to the sub-prime crisis in the US and the global credit squeeze that followed by the last quarter of 2007, several foreign banks backed out.

It was SBI that came to its rescue in late 2007 with a $1 billion loan during that period of global credit freeze. SBI’s then Chairman OP Bhatt is quoted in this DNA report as stating that “SBI has become so nimble that when Tata-Corus did not get that last bit of $1 billion funding, we sanctioned in five minutes”.

One wonders if similar questions were raised then.

The funding did not stop here. Two or three weeks after the $1 billion deal,SBI agreed to lend another $1-1.5 billion to enable the Tata Group to refinance bridge loans taken by it for acquiring Corus when foreign banks turned-risk averse.

Again, in 2010, the Tata Group raised 3.53 billion (Rs 25,000 crore) from a consortium of banks led by SBI and StanChart to refinance the loans it took in 2007 at the time of acquisition of Corus. Tata Steel Europe’s MD & CEO stated that lenders to Tata Steel “showed confidence by supporting its plans to weather the financial crisis”.

This is one major transaction where the pulling out of several banks didn’t stop SBI from thinking twice about lending money to Tatas. Should it be alleged that this only happened due to the personal rapport shared by PM Manmohan Singh and Ratan Tata? Indeed, not.

Moreover, it was during UPA’s rule that SBI lent mammoth amounts to Kingfisher Airlines, now defunct. Is it fair to allege that Kingfisher got loans only because someone in the UPA enjoyed good relations with Vijay Mallya?

Those in the Congress criticising SBI’s MoU (and once again, not a ’loan’ yet) overlook the fact that the one word to describe how SBI has gone about its operations is ‘aggressive’. It has been doubling in size every five years; it has dared to lend in areas where no one had ventured before, that too quicker than usual. As the then SBI Chairman said during the initial $1 billion funding to Tata Steel, “no bank in the world can do this kind of funding in 5-10 minutes; we have been doing it”.

Surely, one can criticise SBI’s aggression and risky lending of huge amounts to big businesses. But that does not mean one automatically concludes that a transaction by SBI (which has been done rather cautiously by SBI in Adani’s case as evidenced above) during the rule of a government that you oppose smells of cronyism.

And, moreover, SBI and Adani have a relationship that goes back two decades spanning the rule of successive governments.

Maken and Congress are busy doing vacuous politics just for the purpose of creating a sensation. However, those in the UPA who have closely seen SBI and the banking sector works would be privately embarrassed.