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Executive Summary

The Adani Group announced a major restructuring at the start of 2015. Adani Enterprises proposed a scheme of arrangement (Scheme) for the demerger of its two subsidiaries, Adani Ports and Adani Power.

The Scheme simplifies the Adani Group structure, improves transparency and lifts the free float in three of the listed entities. The Scheme also involves listing Adani Transmissions on the BSE by an in specie pro-rata distribution to Adani Enterprise shareholders. The Scheme unwinds Adani Enterprises’ shareholdings of Adani Ports and Adani Power and separately lists Adani Transmissions. IEEFA views the increased free float, transparency and simplicity as positives in terms of enhancing the equity market value. Adani Enterprises’ collective equity market value has been enhanced by the removal of the “Holding Company” discount.

The Government of India (GoI) is pursuing a radical transformation of the Indian coal mining, renewable energy, power generation and electricity distribution sectors. Energy Minister Piyush Goyal has set extremely ambitious targets in regard to increasing Indian energy supply, including 175 gigawatts (GW) of additional renewable energy installation by 2022, a US$50 billion (bn) modernization and expansion of the electricity grid and a possible trebling of India’s domestic coal production to 1,500 million tonnes per annum (Mtpa).

The Adani Group strategy is moving to better align with the GoI’s new policy. The Adani Group’s rapid expansion plans into solar module manufacturing, solar project installation, domestic Indian coal mining and grid transmission are entirely consistent with the GoI electricity transformation.

IEEFA’s Indian electricity sector model illustrates that even with strong economic growth, the GoI’s plans for a rapid deployment of wind, solar, hydro, gas and nuclear power, plus increased domestic coal production will combine with a significant improvement in energy and grid efficiency to lead to a cessation of Indian thermal coal imports by around 2020. Energy Minister Goyal seeks to build India’s energy security through system diversity utilizing domestic resources.

Energy Minister Goyal has also made it clear that India’s reliance on thermal coal imports is not sustainable for the economy, nor commercially viable for the coal-fired power plants involved.

IEEFA views Adani Enterprise’s Galilee coal mine, rail and port proposal as a stranded asset, left financially unviable by the structural changes in both the Indian electricity market and the global seaborne thermal coal sector, in a pattern similar to a number of other Indian companies with failed overseas coal expansions since 2010. This Scheme further marginalizes the Carmichael proposal.

Please view full report PDF for references and sources.

Press release: IEEFA Study: Corporate Restructuring at Adani Enterprises Enhances Shareholder Value; Marginalizes Australian Coal Project; Better Aligns Adani Group With Transformation of India’s Electricity Sector

Tim Buckley

Tim Buckley, Director, Climate Energy Finance (CEF) has 30 years of financial market experience covering the Australian, Asian and global equity markets from both a buy and sell side perspective. Tim was formerly Director Energy Finance Studies, Australia/South Asia, IEEFA, and was a Managing Director, Head of Equity Research at Citigroup for 17 years until 2008.

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