Icra downgrades outlook on Adani Ports, Adani Total to 'negative'

Affirms ratings on long-term loans of both firms

Icra revised the rating outlook for two Adani group entities -- Adani Ports and Special Economic Zone Ltd (APSEZ) and Adani Total Gas Ltd (ATGL) - from “stable” to “negative” on account of the deterioration in the Group’s financial flexibility. The agency, however, affirmed the ratings on the long-term loans of Adani Ports Ltd at “AA+” and of Adani Total Gas Ltd at “AA-”.

This follows a sharp decline in share prices and an increase in the yield of international bonds raised by group entities, after a report on the group was released by US-based short seller Hindenburg Research.

The Group’s strong financial flexibility and APSEZL’s track record of refinancing a large part of debt with borrowings (mostly from overseas debt capital markets) of longer tenures at lower interest rates were key credit strengths. These have been adversely impacted, according to the agency. Icra said in a statement that It will monitor the group’s ability to raise funds from the domestic/global market as equity/debt on competitive terms.

Further, the rating agency sees an increased risk of regulatory/legal scrutiny on the group entities and its impact on APSEZL's credit quality will be monitored. However, the company’s liquidity profile remains robust and a large repayment of international bonds of $650 million is due only in FY2025.

The rating reaffirmation continues to factor in APSEZL's strong business profile, marked by its favourable operating traits, geographically spread-out footprint, diversified cargo mix and long-term customer tie-ups.

Referring to Adani Total Gas, Icra said while ATGL has staggered some of the capex plans over the next two years considering progress achieved in projects awarded in ninth and tenth rounds.

Further, ATGL has funding tie-ups to meet its capex needs in the near term, but it has large capex requirements over the longer term which need significant debt funding. Hence, the Adani Group’s reduced financial flexibility can impact ATGL’s ability to raise funds from the domestic and international markets and raise the cost of capital.

The ratings continue to factor in ATGL’s healthy financial risk profile, characterised by adequate return and debt protection metrics because of the robust cash generation from its ongoing business, Icra added.