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Gautam Adani says Queensland to co-invest in Australia project, govt defends SBI loan

Just a day after Finance Minister Arun Jaitleydefended the State Bank of India's (SBI's) decision to enter a memorandum of understanding with the Adani Group for a $1billion loan for its Australian coal mine project, Gautam Adani, chairman ofAdani Enterprises, has reportedly said that Queensland state will pick up a "substantial stake" to fund the port and rail road projects to evacuate coal from the Galilee basin.

According to agency and other reports, the Queenslandgovernment sees the Galilee Basin as key to turning around the state's economy and the state governmentwill offer hundreds of millions of dollars to fund short-term equity stakes in rail, port, airport, water and electricity infrastructure servicing the basin's proposed coalmines. But environmentalists say Queensland's plan to invest in coal mining infrastructure will endanger the Great Barrier Reef.

Which is why thecommitment made by the Queensland government is being cited by the Gujarat-based company as a show of confidence in a project that has been criticised by Indian opposition parties as well as international bankers.Adani is seeking A$3.2 billion ($2.8 billion) from banks and South Korean lenders to help fund the project and Queensland's support is absolutely essential to secure this funding.

The proposed loan to Adani has generated a lot of controversy with questions over SBI's decision, given the group's high leverage levels. The critics have primarily the following questions: Why did SBI decide to give a $ 1 billion loan to a project, whose previous attempts at fund raisingwere turned down by several international banks who cited non-viability of the project? Greenpeace had said in July that the Royal Bank of Scotland, Deutsche Bank and HSBC had distanced themselves from Adani's venture, citing potential environmental damages. EvenGoldman Sachs, Citigroup and JP Morgan Chasejoined the bandwagon last month, saying they have ruled out funding involvement in the project.

Also, Adani's bigger coal rivals in Australia, such as BHP Billiton and Glencore, have shelved coal developments in the backdrop of Australia's coal industrymaking losses. What is the guarantee that SBI won't burn its hands by lending to Adani for such a project?

And as Firstbiz pointed out earlier,Adani Enterprises have total debt of Rs 72,632 crore, which includes long-term debt of Rs 55,365 crore and short-term debt of Rs 17,267 crore. Thegroup's ability to repay its debt obligations is perceived to be weak as reflected in its declining interest coverage ratio. Moreover, SBI's loan offer comes at a time when banks are reporting sluggish loan demand and a rise in bad loans, with many companies, especially infrastructure firms, lining up for debt restructuring.

SBI has defended the move saying the loan was yet to be sanctioned and so far only an MoU had been signed. Besides, SBI chairman Arundhati Bhattacharya had pointed out that the facility would result in a net outgo of $200 million as Adani proposed to clear dues of around $800 million.

And on its MOU with SBI, Adani said hehas never given SBI any reason to regret lending to the company.

"(In) all our transactions, whether it was acquisition of Dhamra Port, or the Udupi power plant or acquisition of AP City terminal, SBI has been financing Adani group. This is a very normal process where they give an in-principle approval and later, after due diligence on the feasibility, the banks take at least six months to give formal approvals,"Adani told ET.

On Sunday (23 November) Arun Jaitley had saiddebt depended entirely on the debtor-creditor relationship and the borrower's creditworthiness. "Since when has the issue of a creditor's willingness to give debt to a borrower become an issue of public debate," he wrote on Facebook.

The Congress had on Thursdaydescribed SBI's proposed credit facility to the Adani Group during Prime Minister Narendra Modi's Australia visit as a case of "crony capitalism". The Aam Aadmi Party called on the Reserve Bank to put the arrangement under scrutiny, saying it was "nothing but a sweet deal for the Adani Group".

And in Queensland, the Labor party's Treasury spokesman, Curtis Pitt, said the cost to taxpayers of the support could be more than $1bn for the $2.2bn railway line, and the government had simply "handed over a blank cheque" to Adani.

Jaitley said the Congress was raking this up as it had a paucity of issues. Jaitley further accused the Congress ofblocking official business and legislation in Parliament. "The Congress had damaged the economy while in power and wants to pursue the same destructive direction while in Opposition."

The Adani group and the SBI inked a pact for the loan hours after Adani, Arundhati Bhattacharya and Modi sat with officials of Queensland in Brisbane last Monday at a meet where the province agreed to facilitate the project. The Adani group - which has denied reports that several private banks had turned down its requests to finance the Carmichael coal mining project - had announced the SBI loan while its chief was in Melbourne with Modi.

The project, if it succeeds, will be Australia's largest coal mining venture at a time the country is struggling to cope with the loss of over 4,000 jobs in the sector over the past two years because of bottlenecks in multiple projects.

"This project has the potential to be the largest coal mine in Australia and one of the largest in the world," Queensland deputy premier Jeff Seeny said in a statement.

The state's report, which set 190 conditions for Adani to meet, including compensating landholders affected by any harm to water supplies, now goes to Australia's environment minister for a final decision.

(With agency reports)

Updated Date: Nov 25, 2014 12:20:53 IST