Moody’s Investors Service changed the outlook on four companies of the Adani group to ‘negative’ from ‘stable’, while maintaining the stable outlook on four other group companies. The credit rating firm on Friday affirmed the ratings on eight Adani Group companies.
Adani Green Energy, Adani Green Energy Restricted Group, Adani Transmission Step-One, and Adani Electricity Mumbai are the four companies whose outlook has been revised to “negative.” Four Adani group firms, including Adani Ports and Special Economic Zone, Adani International Container Terminal, Adani Green Energy Restricted Group, and Adani Transmission Restricted Group 1, have stable outlooks, according to Moody’s.
This rating action from Moody’s follows a rapid decline of the market equity values of the Adani Group firms after the publication of a report by a short-seller Hindenburg Research alleging governance issues in the Group.
While maintaining its Ba3 rating, Moody’s altered the outlook on Adani Green Energy from “stable” to “negative”. According to the rating firm, the company’s extensive and diverse portfolio of solar and wind generation projects, extremely high financial leverage, and consistent cash flow supported by long-term power purchase agreements (PPAs) all contributed to the affirmation of Adani Green’s senior secured bond grade.
“The change in the outlook to negative on Adani Green considers the company’s large capital spending program and dependence on sponsor support, potentially in the form of subordinated debt or shareholder loans, which will likely be less certain in the current environment,” Moody’s said.
In the case of Adani Electricity Mumbai (AEML), it said, “The rating affirmation considers AEML’s elevated financial leverage partly due to its large capital spending in recent years. The change in outlook to negative reflects the likely reduction in its funding access and reduced ability to manage any material increase in funding costs given the limited headroom in its credit metrics under Moody’s base case scenario.”
The change in the outlook on Adani Green Energy Restricted Group to negative “factors in the refinancing risk associated with $500 million of bonds maturing in December 2024. Moody’s recognizes that the project finance structure of AGEL RG-1 provides protection from any contagion risk from the broader Adani Group.”
On Adani Transmission Step-One (ATSOL), Moody’s said, “ATSOL’s senior secured bond ratings reflects the company’s close credit linkage with its wholly-owned parent, Adani Transmission Limited (ATL), owing to the parental guarantee provided by ATL over the rated bonds and the event of default provisions linked to ATL’s solvency. ATL’s credit profile, in turn, reflects the predictable revenue from its diversified portfolio of quality regulated or contracted transmission and distribution assets, as well as the group’s aggressive growth strategy and the incremental debt required to fund its capital spending.”
Moody’s said the affirmation of Adani Ports’ issuer ratings considers the company’s strong market position as the largest port developer and operator in India by cargo volume and its strong liquidity and financial profile.
Moody’s said it could upgrade Adani Ports’ rating if the sovereign rating is upgraded; the company continues to improve its operating performance and business mix; and it undertakes permanent leverage reduction, with its FFO/debt above 22 per cent on a sustained basis.