Mumbai: Ambuja Cements, now controlled by the Adani Group, has announced plans to repay Penna Cement’s expensive debt ahead of schedule. This move follows Ambuja’s recent acquisition of Penna Cement for ₹10,442 crore, which includes taking on Penna’s existing debt.
Debt Repayment Plans
Private credit funds like Edelweiss Alternative Asset, which currently have investments in Penna Cement, expect Ambuja Cements to clear Penna’s costly debt. Penna’s debt includes a high-interest loan from Edelweiss with an annual rate of over 15%.
Reducing Borrowing Costs
Adani’s backing is anticipated to help Penna Cement reduce its borrowing costs significantly. Lenders expect Ambuja to refinance or repay ₹6,600 crore in term loans and ₹400 crore in high-cost debt. This debt includes ₹400 crore of secured non-convertible debentures issued to Edelweiss in March, with a 15% interest rate, due in three years.
Improved Credit Rating
Credit rating agencies are likely to upgrade Penna Cement’s rating from BBB-minus to AAA after the acquisition, lowering future borrowing costs.
Financial Impact
Penna Cement’s financial structure includes ₹2,350 crore in working capital, a non-fund-based working capital limit of ₹3,150 crore, and a term loan of ₹6,629 crore maturing in September 2027.
Company Statements
The Adani Group confirmed during an investor call that it intends to pay off Penna’s existing debt. An Adani spokesperson said this repayment would support a turnaround at Penna, similar to the improvement seen at Sanghi Industries, whose credit rating jumped from ‘D’ to ‘AA’ after being acquired by the Adani Group.
Financial Struggles
Penna Cement has been under financial strain, relying on funds from its promoters to meet debt repayments. This led to a low debt service coverage ratio, falling below 1x. In a recent report, India Ratings downgraded Penna’s rating to BBB-minus, highlighting difficulties in meeting scheduled term debt repayments.
The acquisition and subsequent debt repayment by Ambuja Cements aim to stabilize Penna’s financial health and reduce its borrowing costs.
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