December 8, 2017 Read More →

IEEFA Australia: Adani’s Bad Month

Few Financiers for a Project on the Ropes

The potential for Adani’s Carmichael coal mine proposal in northern Australia took a dramatic turn this week as one major Chinese bank after another ruled out financing the project.

The news comes shortly after Queensland state’s Labor Party government promised to block a federal taxpayer-funded loan to Adani if re-elected—and odds are the party has the majority it needs. So it seems that Adani won’t be receiving the A$1billion loan it needs to underpin the rest of its increasingly desperate search for funding.

Adani’s fortunes in Australia have fallen fast.

Word in early November was that Chinese funding could be tapped to save the project. The company was in negotiations with China’s state-owned China Machinery Engineering Corporation (CMEC) over contracts for mining plant and equipment, an arrangement that could have meant large Chinese commercial-bank participation in the Carmichael project. That news followed a revelation that Australia federal government ministers, including the deputy prime minister, had written to the Chinese government confirming that the mine project had received all the required approvals in a letter that may have been written at the request of Adani.

Confidence was running so high that on Nov. 23, a director of Adani Mining stated that the company had indeed secured Chinese funding and that it would no longer need the Australian federal loan.

CONFIDENCE IN THE DEAL TURNED OUT TO BE MISPLACED, however. By the end of the month, the first of the major Chinese commercial banks to pull out — China Construction Bank—made it clear that it would not be involved with the project.

Then the Industrial and Commercial Bank of China (ICBC), the world’s largest bank by assets, backed out, and by Dec. 5, the Bank of China had done so as well, becoming the 27th commercial bank to rule out Carmichael project participation.

To drive the Chinese government’s point home, the Chinese Embassy in Australia made it clear that no Chinese bank would support the Carmichael project.

Approaching Chinese banks is seen as perhaps the last roll of the dice for Adani. China builds and finances energy projects around the world with a largely technology-agnostic view, and Chinese banks are active in coal mine and generation projects through Asia and Africa.

It is hard to see who else at this point Adani can turn to, and the Carmichael project—which has been an increasing iffy proposition for quite some time now—looks as stranded as ever.

Adani’s fortunes in Australia have fallen fast.

This turn of events has significant implications for Adani’s Abbot Point coal terminal too. The port is currently operating at just over 50 percent capacity and needs Carmichael coal to make it sustainable. Adani Abbot Point also needs to refinance A$1.5 billion of loans through 2018, a task that has just become even more difficult. The value of the port’s 2022 bonds dropped this week to 97.5 cents on the dollar after issuance at 99.4 cents just last week.

While Adani continues to insist that it remains committed to the project—an unsurprising stance given that it would otherwise have to write off the A$1.4bn it has invested in the proposal so far—Adani Enterprises, the parent company, is in a weak position to have to weather such a write down.

That said, founder Gautam Adani built his business empire up from nothing because of his ability to improvise during periods of difficulty. There may yet be more twists and turns to  the Carmichael story, which can’t be considered over until Adani openly accepts the end of its Australian coal ambition and looks at a new direction that may require fully embracing its burgeoning solar business.

Simon Nicholas is an IEEFA energy finance analyst.

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