Gautam Adani has pledged his entire 63 per cent stake in Ambuja Cements and his 56.69 per cent stake in its subsidiary ACC. At the current market prices, the combined value of the pledged shares stands at over Rs 1 lakh crore (trillion).

The billionaire industrialist completed the acquisition of Holcim’s cement business in India for $6.4 billion on September 16. On May 15, the promoter family through an offshore special purpose vehicle entered into definitive agreements to acquire the Swiss firm’s cement operations in India. The purchase entailed the entire 63.11 per cent in Ambuja Cements and a 4.48 per cent direct stake in ACC.

Ambuja Cements holds 50.05 per cent in ACC. While the acquisition is funded by debt, regulatory filings made by both the companies on Tuesday disclosed that the shares were pledged as ``collateral for loans taken by the company/group company’’.

The announcement raises fresh questions about the level of leverage in the group that has been hungry to grow through the inorganic route. Deutsche Bank AG’s Hong Kong branch is the agent for the pledged shares in ACC and Ambuja. The companies said that promoter firms Endeavour Trade and Investment and Xcent Trade and Investment borrowed under facility on July 25 this year and signed the trust deed dated September 9 with Deutsche Bank’s Hong Kong Branch.

``Under certain deeds of fixed & floating charge, over 100 per cent shares in ETIL, XTIL and Holderind Investments have been created in favour of DB,’’ the companies added. In ACC, around 10.64 crore shares representing 56.69 per cent has been encumbered with DB.

In Ambuja Cements, 125.38 crore shares or 63.15 per cent of the total shareholding. were pledged on September 15. Based on Tuesday’s closing prices on the BSE, the value of the holding stands at Rs 29,016.96 crore in ACC and Rs 71,984.03 crore in Ambuja Cements.

While pledging the shares of the target or the acquired company to fund acquisitions is not new, concerns have been raised about the group’s debt levels. Last month, CreditSights, a Fitch Group unit, said the group was “deeply overleveraged’’, pointing out that Adanis has been investing aggressively across both existing and new businesses predominantly using debt, resulting in elevated leverage and solvency ratios.

The Fitch arm said this has understandably caused concerns about the impact on the group firms that are bond issuers. In the worst case scenario, overly ambitious debt-funded growth plans could eventually spiral into a massive debt trap, CreditSights warned. Subsequently, CreditSights came out with a follow-up report regarding the leverage at the group. The new report admitted to “calculation errors’’ in its earlier note on two group firms — Adani Transmission and Adani Power — even as it dropped the phrase “deeply overleveraged’’.

Corporate India is full of examples of promoters losing control of their companies after lenders have invoked pledged shares because of defaults. Though such an event is unlikely to happen at the Adani group, the extent of leverage remains a worry. The Adani group has contended that its portfolio companies have consistently reduced debt and this has resulted in an improvement to the net debt to operating profit ratio. It has also maintained that group companies have been successful in halving loans taken from PSU banks.

While replying to the first Credit Sights report, Adani said its companies have consistently de-leveraged, with the net debt to Ebitda ratio declining to 3.2 times from 7.6times in the last nine years. It also added that the group Ebitda (earnings before interest, taxes, depreciation & a amortisation) has shown a compounded annual growth rate (CAGR) of 22 per cent in the last nine years whereas debt has only grown 11 percent CAGR during the same period.