Prime Minister Narendra Modi might have charmed his new Australian friend, Prime Minister Tony Abbott into clicking selfies, but that doesn't mean he has forgotten his old friends.
State Bank of India extended a $1 billion (Rs 6,000 crore) loan to Adani mining for its Carmichael mine project in Queensland (Australia). Adani, who was part of a business delegation accompanying Modi to the G20 Summit in Brisbane, also won a commitment from the Queensland state government to take short-term, minority stakes in rail and port infrastructure needed to unlock the massive coal reserves in the untapped Galilee Basin. Courtesy of the SBI loan and support from the Queensland government, Adani will now be able to build a $7-billion coal mine. He would also be able to defy a slump in coal prices to five-and-a-half-year lows that has stalled many rival mining projects.
"The MoU with SBI is a significant milestone in the development of our Carmichael mine," Adani said in a statement. It is a significant milestone indeed, not just for the Carmichael project, but also for the relations between politics and industry in India. SBI is India's largest banking and financial services company and this loan is perhaps the largest-ever loan given by an Indian bank for a foreign project. Gautam Adani is a very lucky man.
Already, many have begun asking questions whether SBI should be giving such a huge loan to a company, which is already under a huge amount of debt. The long-term debt of the company stood at Rs 55,364.94 crore and the short-term debt stood at Rs 17,267.43 crore as of September 30, 2014, making the total debt Rs 72,632.37 crore. This is an increase of Rs 7,653.33 crore from March 31, 2014, which raises serious questions over the company's ability to service its debt.
It is believed that the SBI had to step in because many other top banks were staying away from the project. Greenpeace has stated that Royal Bank of Scotland, Deutsche Bank and HSBC had decided to stay away from the project because of the massive environmental damage it is expected to cause. Environmental and legal hitches will also impact the overall viability of the project and will, in all likelihood, prevent Adani from meeting its 2017 deadline.
Writing about the complete non-viability of the project in the Sydney Morning Herald, Michael West calls it "whitest of white elephants". "No, more than this, this is an elephant which does not merely lack financial viability but which is also a calamity for the environment," West writes. Further ridiculing the debt-ridden Adani, he writes "It (Adani enterprises) has debts of $12 billion on an external market cap of $12 billion...This is a white elephant with purple polka dots".
Is SBI, which calls itself the "banker to every Indian", giving away Rs 6,000 crore for a white elephant?
What makes Adani such a special man?
The answer to this, as with most questions related to Modi, takes us back to 2002. In the months following the Gujarat riots, many of the prominent voices in Indian industry - Deepak Parekh, Rahul Bajaj, Azim Premji and NR Narayana Murthy to name a few - had began speaking against the state, which till then had been a favoured destination for business. Needless to say, Modi didn't take the criticism too kindly and soon a few Gujarati industrialists threatened to pull out of the Confederation of Indian Industry in protest. One of these industrialists was Gautam Adani. Adani's business fortunes have been inextricably linked with the political fortunes of Narendra Modi. In the next 12 years, Adani group's turnover increased more than 20 times: from Rs 3,741 crore in 2002 to Rs 75,659 crore in 2014. From cheap land to state promotion, Adani owes a great deal to the BJP government in Gujarat. Nothing epitomises this better than Adani's crown jewel: the Mundra port in Kutch. In some parts, Adani was given land at rates as low as Rs 1 to 16 per square metre. Admitting the role of state patronage, Adani told Fortune magazine in 2011, "I firmly believe that the business of infrastructure cannot be done without the blessings of the government."
Adani is reported to have broken into the list of ten richest Indians soon after Modi captured power in the Centre. Ask any stock market pundit today, and they will ask you to invest in Adani Ports or Adani Power. The patronage appears to have continued. Last month, the Modi government diverted 148.59 acre of forest land for Adani's Gondia Power project in Maharashtra, throwing environmental concerns out of the window. Incidentally, Gondia is political base of NCP leader Praful Patel, who in 2010, had come out in support of Adani's power plant in Tiroda (Gondia district) against the concerns raised by the then environment minister Jairam Ramesh. It is the same plant that is now being expanded, at the expense of acres of forest land. And Patel's party is now supporting the BJP government in Maharashtra from outside.
Achhe Din are here. At least for Gautam Adani.