Nomura Sees Upside in Adani Bonds Despite DoJ Allegations, Expects 7–8% Yield Levels

Nomura: Adani Bonds Could Gradually Trade at 7–8% Levels

Nomura has expressed optimism about the Adani Group, stating that its bonds could trade at 7–8% levels in the future. The brokerage firm views the conglomerate as the “most attractive” among Indian corporates, especially since its peers appear comparatively overvalued. Despite recent challenges stemming from allegations by the U.S. Department of Justice (DoJ), Nomura believes the ports-to-power giant is well-positioned to weather the storm.

Improved Liquidity and Risk Management 

According to Nomura, Adani Group’s liquidity management has significantly improved over the past year, especially since the turbulence caused by the Hindenburg report. The brokerage also dismissed concerns over promoter share pledge loans, noting that the group has effectively managed risks in the past, even during steep stock price fluctuations.

Nomura suggests that while Adani might need to temper its ambitious growth initiatives in the short term, such caution would further strengthen its ability to navigate the current challenges.

Impact of DoJ Allegations on Financing 

Nomura downplayed the implications of the DoJ indictment, highlighting that the allegations are not equivalent to a breach of anti-corruption covenants. The firm cited Adani management, emphasizing that a breach would only arise if guilt is established. 

Although some global banks have paused financial support to the group, Nomura expects this to be temporary, especially as the “big three” Japanese banks remain committed to their relationship with Adani. The brokerage added that lenders may request covenant waivers or consent fees but are unlikely to trigger defaults.

Notably, Nomura clarified that any default on syndicated loans would not lead to cross-defaults on Adani Green Energy or other USD bonds, safeguarding the group’s broader financial stability.

Capital Expenditure Cuts and Bond Buyback Plans 

In response to the turmoil, Adani Group has announced measures such as reduced capital expenditure and a bond buyback plan to stabilize bond prices. These steps reflect its commitment to maintaining financial health amid external pressures.

Bond Price Expectations 

Nomura foresees a gradual upside in bond prices for several Adani entities, including: 
– Adani Green Energy Ltd.
– Adani Ports & Special Economic Zone Ltd.
– Adani International Container Terminal Ltd.
– Adani Electricity Mumbai Ltd.
– Adani T-One Transmission Ltd.
– Adani Renewable Energy Ltd.

For Adani Green Energy, prices could rise by up to 7 points, while other entities might see gains of 2–4 points. However, the downside risk ranges from 5–16 points, Nomura warned. Despite the current unattractiveness of bond prices, the firm maintains a small long position in Adani, betting on a favorable risk-reward scenario.

Positive Operational Outlook 

Separately, Bernstein has also voiced support for the Adani Group, citing improved operational metrics since the short-seller attack. Recent developments, such as Adani Energy Solutions securing its largest-ever order, further highlight the group’s resilience and growth potential.

With ongoing support from key lenders and strategic measures to enhance liquidity, Nomura’s outlook on the Adani Group remains cautiously optimistic.

Adani Stock Hedges Near Monthly Highs

Hedging costs for Adani stocks have remained close to their monthly peaks, reflecting heightened caution among traders. This trend indicates that market participants are actively seeking protection against potential declines in the company’s stock prices, driven by ongoing uncertainties and perceived risks.