Fitch Ratings affirms Adani Ports rating at 'BBB-'; outlook stable

Hindenburg report allegations have limited near term impact

Fitch Ratings has affirmed Adani Ports and Special Economic Zone Limited's (APSEZ) long-term foreign-currency issuer default rating (IDR) at 'BBB-'. 

This development reflects view that the Hindenburg report alleging governance issues at the Adani group has a limited near-term impact on APSEZ's cost of funding and access at the current rating level, Fitch said. 

"We expect APSEZ's financial flexibility to remain supported by its robust portfolio of seaports, which comprises strategically located assets with best-in-class operational efficiency and an adequate liquidity position", it added.

The outlook is stable.

APSEZ's internal cash surplus is sufficient to cover its near-term operations and debt obligations as well as its budgeted capex.

About half of APSEZ's cargo is sticky, which includes contractual take-or-pay cargo, cargo that is unlikely to be diverted to other ports due to infrastructure restrictions, such as the lack of facilities to handle crude oil, and cargo from joint-venture partners.

India-based port operator APSEZ has timing flexibility in its expansion projects. Management has budgeted capex of about Rs 4,000 crore to Rs 4,500 crore for the year ending March 2024 (FY24). However, this could be restricted to maintenance capex of about 10 per cent of the total capex budgeted.

Nevertheless, aspexts like governance weaknesses at the sponsor level and other Adani group entities and aggressive debt-funded investments at some entities - expose APEZ to higher contagion risks, which could affect financial flexibility, Fitch said.

The rating agency revised the Environmental Social Governance assessment (ESG) for Governance Structure and Group Structure for APSEZ to '4' from '3'. This is due to the complexity of its group structure at the shareholder level. It has a negative impact on the credit profile, and is relevant to the rating in conjunction with other factors.

Fitch's governance assessment, along with India's (BBB-/Stable) Country Ceiling of 'BBB-', now constrains APSEZ's rating at 'BBB-'.

The company's financial profile is stronger than that commensurate with a 'BBB-' rating including highly concentrated shareholding structures across group entities, it added.