Adani Electricity Mumbai Ltd (AEML) has sent the following rebuttal to The Telegraph report published on March 6, headlined “How Mumbai is left at the mercy of Adanis”. The report was on the risks that arise from the fierce collateral terms attached to the $1-billion Senior Secured Notes that AEML floated in February 2020. The Telegraph’s response to the AEML rebuttal is included.

AEML

We would like to put it on record that the story is published with questionable intentions and is completely baseless with little research and understanding of how the sector operates and financing is conducted.

It is highly unfortunate that the journalist... has not taken the usual courtesy of giving the company an opportunity to clarify, leading to a story which misrepresents and maligns the reputation of AEML.

AEML is a subsidiary of Adani Transmission Limited (ATL), which is a listed entity on the Indian Stock Exchange. The company operates in an evolved and established regulatory framework and is a regulated entity as per provisions of The Indian Electricity Act 2003. AEML falls under the regulatory purview of the Maharashtra Electricity Regulatory Commission (MERC) and as such, all the information is also submitted to the regulator MERC at regular intervals.

We would like to draw your attention to the fact that the bonds issued by AEML have been consistently rated as Investment Grade (BBB- / Baa3) by the three international rating agencies — S&P, Moody’s and FITCH, which is equivalent to the sovereign rating of India. Due to such a high credit quality of AEML and its superior operating perfor mance, AEML has been rated 2nd best operating Discoms (distribution companies) in the country by Power Finance Corporation in its 10th Annual Integrated Discom Ratings report with a grade of A+, out of 52 Discoms in India.

It must be understood that for any Discom that borrows money, there would be serious repercussions if they falter on payments. As of today, there have been no defaults of any kind of loan (No interest default /No principal default) in AEML. The company has a superior track record of servicing all its interest payments and has never ever missed any payment due date.

Secured debt is a well-recognised and integral component of any business.

The bonds were issued after following due process and rated by credible rating agencies whose sole purpose is to confirm that the business can sustain the debt.

It is highly unfortunate that a publication of your stature has released a poorly researched story which prima facie appears to be motivated. Please see the pointers above establishing the financial standing and security of the company.

The Telegraph

AEML seems most aggrieved by what it perceives as mala fide intent in our report. The Telegraph published the report to make people aware of the enormous risks that AEML’s consumers face if the company defaulted on the $1-billion loan that was backed by the pledge of its entire equity, assets, receivables and — most importantly — the transmission and distribution licences.

The report carried a wealth of detail — all culled from various regulatory filings made by AEML — that the company cannot repudiate. So, it chooses to question our motivations and derides our understanding of the way the sector works.

The company claims that it had shared all the relevant information with the electricity regulator of Maharashtra. We have never disputed that.

However, AEML’s consumers — the households, commercial establishments, and businesses that rely on the utility for electricity supply — were almost universally ignorant about the consequences in the event of a bond default. They were never informed or drawn into any discussion simply because public consultation with consumers in matters that can compromise their interests isn’t part of an obligatory process in this country.

These risks have amplified in the past two months. The flurry of meetings with a variety of bond-holders at other Adani group listed companies and the move to pre-pay bonds worth over $2 billion is indicative of the risks that share backed borrowings run in a volatile market.

AEML’s parent — Adani Transmission — is also pre-paying its bonds. But there is no word on whether the unlisted AEML will do so as well. We did not suggest that the company had either defaulted on payments or was even close to it. The AEML bonds will mature in 2030 —which means that these risks will loom over the consumer still then, unless the loan is paid off in advance.

Those at the helm of governments may come and go; the laws may change; and regulators may no longer permit assignment of licensing rights against borrowings. But the risks will not go away as long as the bonds stay in operation.

In the eventuality of a default, AEML’s geography could turn into an area of darkness — a prospect that AEML’s consumers were probably not aware of, and are likely to be distressed about.

AEML claims we do not understand how the sector operates or is financed. It took over Reliance Infrastructure’s operations in Mumbai only in August 2018. Within 18 months, it had encumbered all its shares, assets and licensing rights.

We would be very interested to know whether the Adani group can name any other power distributor — state owned, private or a joint venture — that has pledged the entire caboodle of its ownership rights and privileges including equity shares, assets, receivables, and the two licences (it doesn’t actually own them but they confer certain territorial and operational rights) in exchange for a single loan, creating a precipitate risk for their consumers.

Neither the Adani group nor we have oracles in our midst who can crystal-gaze into the future and say with certainty that the risk of default will never arise.

In its response, AEML itself says: “It must be understood that for any Discom that borrows money, there would be serious repercussions if they falter on payments.”

The question is whether it is right to let consumers suffer in such an eventuality when they were never apprised of the risks in the first place.

The intention of The Telegraph was merely to inform people about the risks they face: nothing less, nothing more.