Sovereign risk an issue in Adani funding decision

The Government’s decision over a $900 million loan request by prospective mine and rail developer Adani is being watched keenly by other major Indian businesses, and could threaten future investment decisions if not approved, Adani’s projects director has said.

Peter Thomas spoke at the Australasian Railway Association’s Rail Freight Conference in Sydney on Friday.

He said Adani hopes to make financial close on its massive Carmichael coal mine project in the Galilee Basin by March 2018, and has a two year timeframe between that date, and first production.

But the project is unlikely to go ahead without a highly controversial $900 million loan from the Northern Australia Infrastructure Facility, the $5 billion fund set up by the Turnbull Government.

And Thomas said the decision could have a massive impact on future spending by Indian companies even bigger than Adani.

“The project is extremely important to Adani,” he told the conference. “I think this is lost a lot on the Australian media.

“This project is being watched by the Indian Government, and very large Indian companies. If it goes ahead and succeeds, it would do wonders for Australia’s relationship with India.

“If it doesn’t, it’ll probably put Australia on – I wouldn’t say a ‘blacklist’ – but on the ‘too difficult’ column of sovereign risk for Indian companies. That’s just a massive opportunity that Australia [may] miss out on.

“Adani is a large company, but it is by no means the largest company. There are some massive conglomerates in India who are all looking into Australia for agriculture, for resources, and so forth, and we’re on the cusp of grasping that opportunity. So it’s really up to us to do that.”

Thomas indicated Adani could afford to deliver the project without the loan, but said the loan was more about getting some off the Government’s “skin in the game”.

“The reason why that’s so important is there’s a lot of distrust of doing projects in Australia, and there’s great concern about the sovereign risk of Australia,” he continued.

“Adani wants the Australian Government to be invested in this project … Adani has taken the approach that they’re not going to invest their good money, unless the Government is invested.”

Speaking with the AFR earlier this year, federal resources minister Matt Canavan said it was a “potential risk” if Adani was indeed relying on the NAIF funding to progress its project.

“They seem confident they can arrange the finance,” Canavan was quoted as saying. “They will lock down their financial models and as part of that due diligence they will share that with NAIF. It is a potential risk – there’s no doubt about that – but it’s a project of enough significance and potential to push ahead regardless to see that it can happen.”