Fitch Affirms 'BBB-' ratings for Adani Electricity Mumbai's dollar bond

Hindenburg report has limited near-term impact on cost of funding

Fitch Ratings affirmed 'BBB-' rating on Monday for Adani Electricity Mumbai Ltd's (AEML) dollar-denoinated senior secured notes due in 2030.

The affirmation reflects the view that the Hindenburg report alleging governance issues at the Adani group has a limited near-term impact on AEML's cost of funding and access thereof, at the current rating level.

The rating agency said in a statement that high cash-flow visibility from regulated assets, regulator-approved capex and an adequate liquidity position with no major debt maturity till February 2030 further support AMEL's financial flexibility.

“We expect AMEL's credit metrics to have adequate headroom based on our conservative rating-case assumptions,” Fitch Ratings said.

The rating agency has also affirmed AEML's $2 billion global medium-term note (GMTN) programme at 'BBB-', along with notes issued under the programme.

Fitch Ratings flagged issues of management and corporate governance. Governance weaknesses at the sponsor level and other group entities, including a highly concentrated shareholding structure across group entities and aggressive debt-funded investments at some entities, can expose all Adani group-related firms to higher contagion risks than previously estimated. This could affect their financial flexibility.

These group-related risks are lower for AEML than for Adani Transmission Limited (ATL), which owns 74.9 per cent of AEML, due to AEML's legal ring-fencing brought on by a strict cash flow waterfall mechanism. Plus, there is the presence of Qatar Investment Authority as a significant minority shareholder.

“We believe contagion risk from governance-related risks at the Adani Group are lower for AEML. The group is also re-evaluating to slow its investment plans, especially in non-infrastructure businesses”, Fitch said.

The family recently sold $1.9 billion in shares across various group entities, including 2.55 per cent in ATL to a US-based fund. It understands that the shareholder's family is in the process of raising additional funding, which is expected to support financial flexibility across Adani group entities, mitigating the risks, it added.