The State Bank of India (SBI) is likely to turn down a $ 1-billion loan request from Adani Enterprises for a $ 7-billion coal project in Australia, scrapping a preliminary deal signed last year, say sources with direct knowledge of the move. They said the bank hadn’t yet given Adani an official notice of the internal ruling but it would be communicated.
A preliminary deal struck in November, signed during a visit to Australia by Prime Minister Narendra Modi, caused some criticism in India, where Opposition partners criticised the record loan to a group whose founder was perceived to be close to Modi.
At that time, SBI had said the deal was a preliminary memorandum of understanding, adding it would do proper due-diligence and project appraisal before giving any cash.
“The credit guys are not comfortable with the project,” said one of the sources. “Nothing is moving on that project.”
A second source said on Friday that SBI blamed poor coal prices for the decision to turn down the loan request. Many Queensland coal mines are running at a loss in an oversupplied market.
Adani’s Australian project has been hit by political and environmental opposition, too, and few in the industry had expected SBI to press ahead with what would have been the largest-ever loan by a state-owned bank for a foreign project.
“It is a challenging project,” said the second source. “The bank has to also look at foreign exchange risk.”
A separate source said Adani had been expecting a ‘No’ from India’s largest bank and had begun talks with other lenders.
“They knew things would not go their way ….There was always a Plan B, and now, Plan B is activated,” said the source.
SBI and Adani did not respond to requests for comment.