S&P raises Adani Electricity Mumbai's outlook from 'Negative' to 'Stable'

IHC investment in parent Adani Transmission Ltd to improve leverage and credit quality

Global rating agency Standard and Poor’s today upgraded outlook on Adani Electricity Mumbai Ltd (AEML) from “negative” to “stable” on expectation of an improvement in credit quality of its parent Adani Transmission Ltd (ATL).

The proposed equity infusion from a strategic investor, International Holding Co. (IHC), into ATL will improve leverage and credit quality of the consolidated ATL group (which includes ATL and all its subsidiaries).

IHC, the investment arm of the Abu Dhabi royal family, seeks to invest about Indian rupee Rs 3,850 crore ($500 million) in ATL for an equity stake of 1.41 per cent on a post-issuance basis. The equity raising has high visibility. The rating agency expects deal completion in May 2022 and without any significant delays because this will come in the form of a qualified institutional placement.

S&P also affirmed 'BBB-' issuer credit rating on Adani Transmission Ltd  and AEML.

The stable outlook on AEML reflects the view that its financial metrics will improve over fiscal 2023 and 2024. This would be driven by a rebound in power demand, stable tariff collections, and timely recovery of lower revenues under the regulatory true-up mechanism. It also reflects our expectation that the credit quality of the consolidated ATL group could strengthen.

The timely tariff adjustments and a continued recovery in power sales volumes will support AEML's financials over the next three years, with its ratio of operating cash flow (OCF) to debt recovering to 9-12.5 per cent over the next two fiscal years, the rating agency said.