Adani Ports fund-raising plan of $1.25 bn draws negative rating outlook

Agencies see strong fundamentals for Adani despite lowered ratings outlook

Adani Ports and Special Economic Zone Limited (APSEZ), which plans to raise senior unsecured bonds up to $1.25 billion to meet its refinancing requirements, is facing rating concerns even as analysts see strong company fundamentals.

APSEZ will use most of the proceeds to refinance its existing debt and/or that of its subsidiaries, which could include Krishnapatnam Port Company Ltd, subject to completion of its acquisition by APSEZ, said Moody's Investors Service.

The company will use the remainder of the proceeds for other general corporate purposes, it said.

Both Fitch Ratings and Moody’s have placed a negative rating outlook with latter assigning Baa3 and former giving BBB- rating.

“The negative outlook for Adani Ports is in line with India Sovereign ratings (released in June). Fundamentally, the company (Adani) is strong. It is just that company’s credit rating has been aligned with country’s credit rating,” said an analyst with another rating agency on condition of anonymity.

In June, Moody’s Investors Service downgraded the nation to the lowest investment grade level and kept it on a negative watch.

Moody’s reduced the long-term foreign-currency credit rating to Baa3 from Baa2, with the outlook implying it could cut the rating further.

The action brought its rating in line with the BBB- assessment from S&P Global Ratings and Fitch Ratings Ltd.

Rise in fiscal deficit as the coronavirus pandemic spreads, Moody’s said India’s growth and credit profile were deteriorating even before the virus outbreak and those risks will become more pronounced now.

The negative outlook for Adani Ports is unlikely to be upgraded in the near term. However, Moody's could change the outlook to stable if the outlook on the sovereign rating changes to stable from negative, it said today.

The negative rating outlook over the next 12 to 18 months reflects the negative outlook on India's sovereign rating and the fact that virtually all of the company's business operations are based in India, said Moody's.

Adani Ports reported a volume of 41.5 million tonne in Q1FY21, down 27 percent from same period last year and lower by 24 percent sequentially.

Like other corporates, Adani Ports aim to conserve cash this year amid COVID-19 crisis and hence may not see major capex. However, the company has a healthy debt-equity ratio with most of the debt on India operations. (see chart)

“At later stage, the company could look to raise funds via equity or even via joint venture for strategic partnership and hence has its options open,” said the rating agency analyst.

As on March 31, 2020, Adani Port’s consolidated cash and cash equivalent stands at Rs 7,326 crore, while for India operations it stands at Rs 13,463 crore. (see chart)

"The increased debt as a result of the proposed bond issuance will not have a material impact on the credit profile of APSEZ as additional indebtedness is largely offset by an increase in its cash balance," said Fitch Ratings today.