Adani Group wrapped up a US$5.25bn debt financing package in 2022, enabling it to buy Swiss building materials firm Holcim’s Indian cement business holdings, even as risk appetite for acquisition finance cooled worldwide.
Eleven lenders joined the borrowing at the close of senior syndication in late July, taking up the entire US$3.5bn senior debt and nearly a third of a US$1bn mezzanine tranche. That left joint underwriters Barclays, Deutsche Bank and Standard Chartered with the remaining US$1.475bn combined across the two-year mezz piece and a US$750m portion backed by shares of other Adani group entities.
And yet, the final outcome for the borrowing was far from assured when the Adani family announced on May 15 its acquisition of Holcim’s 63.11% stake in Ambuja Cements, which holds a 50.05% interest in cement company ACC, as well as the purchase of a 4.48% direct stake in ACC.
The debt size did not grow from the US$5.25bn as Adani only acquired small additional stakes in the two Mumbai-listed targets through the open offers that closed on September 9. As a result, Adani ended up acquiring 63.15% in Ambuja Cements and 56.69% in ACC, with the total consideration for the initial stakes and the open offer amounting to US$6.5bn.
Nonetheless, Adani and its underwriters faced a daunting task in mobilising liquidity for the US$5.25bn debt financing, especially as volatility and risk aversion had already become a key focus for financial markets following Russia’s invasion of Ukraine in late February and amid expectations of rising interest rates.
The financing size – Adani’s biggest ever – also posed a significant hurdle. It was India’s largest M&A loan in more than a decade and the country’s third-largest overall.
The borrowing also had to contend with a smaller universe of lenders as some banks were concerned about leverage levels – the senior loans carried a gearing of around four times, while the mezz piece represented an additional three times. Moreover, Indian banks and financial institutions could not participate in the borrowing as they are prohibited from financing an offshore entity’s acquisition of shares in an Indian company. The highly competitive and complex process also needed to be completed under a tight timeframe.
The juicy pricing and the potential for ancillary business provided the allure for lenders as Adani has become India’s second-largest cement manufacturer following the acquisition. The US$500m six-month tranche and the US$3bn 18-month loan pay interest margins of around 425bp over SOFR with a 50bp step-up kicking in six months from signing and every three months thereafter. The mezz portion pays around 850bp over SOFR with a higher step-up than that on the senior facilities.
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