Adani’s petrochemical plant inches closer to getting a ₹17,000-cr lifeline from SBI-led consortium

The loan, from a consortium led by India’s largest lender SBI, will be part of a financial closure programme for Adani Petrochemicals Ltd’s coal-to-polyvinyl chloride plant, which would be India’s largest PVC manufacturing facility once completed.

The group had in March last year halted the project saying it had decided to hold major equipment procurement and site construction activities pending financial closure, following the Hindenburg report that had alleged financial fraud at Adani Group companies. 

Three months later, though, in July, the group resumed work on the petrochemical plant, which requires an overall capex of ₹25,000-27,000 crore, or about $3 billion). 

“An SBI-led consortium will finance around ₹17,000 crore (about $2 billion) for the project,” said a person in the know of the development.

Mint had in July 2022 reported that Adani Group had approached SBI for a ₹14,000 crore loan to build a the petrochemical plant in Mundra. 

The agreement on the loan was finalised in March and SBI will shortly start onboarding other lenders, said another person familiar with the plans. 

“The list of lenders is not final yet. SBI would downsell portions of the ₹17,000 crore loan to other banks,” the second person said. 

In financial parlance, downsell, or sell-down, refers to the selling of a loan portfolio by a bank to other banks and non-banking financial companies. It is a standard practice in infrastructure financing for banks to downsell portions of large loan exposures.

Adani Group and SBI did not immediately reply to queries on the loan plan.

Spawning a petchem cluster

Adani Petrochemicals expects the first phase of the project to be completed by 2026, with a capacity of 1 million tonnes, said the second person mentioned above, adding that the company has secured approvals for a total of 2 million tonnes per annum capacity.

PVC, or polyvinyl chloride, obtained by refining or processing products such as coal or natural gas, is an inexpensive and toxic plastic used in a variety of applications across sectors such as building and construction, healthcare, electronics, and automobiles. 

“The coal would largely be imported, may be from the (Adani Group’s) mines in Australia and also from other major sources such as Indonesia, depending upon the commercial viability,” said the second person quoted earlier.

Also read: Chemicals & Petrochemicals demand in India expected to reach $1 trillion by 2040

In its annual report for FY 2022-23, Adani Enterprises had said the company would “leverage the group’s resources at Mundra to build a state-of-the-art petrochemicals industry to enhance PVC import substitution”.

“The company is planning to commission refineries, petrochemicals complexes, specialty chemicals units, hydrogen and related chemicals plants in a petrochemical cluster in Mundra,” it had said, adding that the company intended to explore opportunities to construct a petrochemical cluster in Mundra following the completion of the project.

Growing demand for PVC

PVC is yet another business where the conglomerate would be competing against Mukesh Ambani’s Reliance Industries Ltd, other than in the renewable energy space.

“There is a significant demand-supply gap for PVC in India,” said Deepak Mahurkar, leader-oil and gas, at PwC India.

“The government has been looking to replace imported PVC with local supplies. Most of the players in the country are established large corporates with strong balance sheets and bank financing has largely been smooth,” said Mahurkar.

Reliance Industries, a major player in the petrochemical business, in its latest investor presentation for FY24, said PVC demand in the country had increased by 9%, driven by agriculture, infrastructure and government projects. 

For the fourth quarter of FY24, RIL’s oil-chemical business reported a revenue of ₹1.42 trillion, higher by 10.9% year-on-year. The company uses crude oil as the feedstock for its petrochemical products.

The market size of India’s chemicals and petrochemicals sector is around $215 billion, and expected to reach $300 billion by 2025, according to industry experts.

Union minister for petroleum and natural gas Hardeep Singh Puri has said that by 2030 petchem demand in India may reach $1 trillion by 2040. In FY23, India’s chemicals and petrochemicals exports stood at $23.8 billion.

Other major companies in the petrochemical business in India include Indian Oil and Haldia Petrochemicals among others. State-run exploration and production major ONGC is also looking at a major footprint in the petrochemical business with two oil-to-chemical plants.

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Published: 04 May 2024, 07:00 AM IST