When Adani Ports & SEZ Ltd acquired Adani Abbot Point Coal Terminal (AAPCT) in May 2011, the Adani press release understandably emphasised the fact that the yet to be fully commissioned port was 100% covered by long term take-or-pay (ToP) contracts.
An analysis of the AAPT accounts for the last five years highlights that on revenues of a cumulative A$1,211m, and despite a gross profit margin of 83%, AAPT has funded $719m of lease rentals to an associated entity (Mundra Port Holding Trust), plus $233m of net interest expenses.
IEEFA notes that the annual related party rental payments from AAPT to Mundra Port Holdings Trust have increased by $95m (up 90%) over the last three years, and this has had the effect of lowering profits in AAPT and moved Mundra Port Holding Trust into a net profit position and hence in a position to pay distributions in the last year or so.
In August 2017, Adani Enterprises Ltd said it would “start early works” on its Carmichael coal mine project, in October 2017, using A$400m of its own funds despite having yet to secure funding for this A$5bn greenfield project.
Investors should be aware that this high-risk gamble is linked to the imminent refinancing needs of Adani’s existing Abbot Point Coal Terminal (AAPCT), which runs the risk of becoming a stranded asset if the controversial Carmichael mine does not proceed.
Currently operating at just over 50% capacity, AAPCT needs the Carmichael mine to fill the gap created as its current Take-or-Pay (ToP) contracts progressively expire.
AAPCT faces a A$1.48bn refinancing by November 2018 and a cumulative debt refinancing of $2.11bn by 2020. The first payment of $A85m was due to be paid to the State Bank of India in September 2017. This refinancing is made even more difficult by the fact that the Wiggins Island Coal Export Terminal (WICET) faces a stressed US$2.8bn refinancing around the same time. For the purposes of refinancing Abbot Point, Adani needs to demonstrate that Carmichael will progress in order to convince financiers that AAPCT will be fully utilized into the future.
With a major refinancing imminent, the financial viability of Adani’s Abbot Point port is increasingly at risk due to a combination of factors:
While AAPCT’s complex and opaque ownership structure appears well-suited to minimizing tax—and while it is impossible to be certain—it appears that the ultimate owner of the port is a British Virgin Islands-based entity, ARFT Holding Ltd.
Among the issues this raises:
With the financial viability of AAPCT increasingly tied to the future prospects of the high risk Carmichael coal project (for which Adani is yet to secure final clearances), any potential investors in Abbot Point are exposed to the following Carmichael project risks (these are in addition to the risk that arises from the stressed financial position of Carmichael proponent Adani Mining Pty Ltd):
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