Fitch affirms Adani Transmission's restricted group notes at 'BBB-'; maintains 'stable' outlook

Fitch Ratings has affirmed the 'BBB-' ratings on the $400 million senior secured notes issued by the restricted group of India-based Adani Transmission.

The outlook on the same is 'stable', the agency said.

The restricted group (ATL RG1) includes six co-issuers - Barmer Power Transmission Service, Chhattisgarh-WR Transmission, Hadoti Power Transmission Service, Raipur-Rajnandgaon-Warora Transmission, Sipat Transmission and Thar Power Transmission Service - and one non-issuing SPV, Adani Transmission (Rajasthan) (ATRL).

Fitch Ratings said that the credit assessment of the restricted group reflects the project companies' availability-based revenue under a supportive regulatory framework, with low technical complexity, reflected in high availability levels and operating performance that the agency expects to remain stable.

However, the project companies have longer-term residual exposure to inflation in light of the mismatch between the operating and maintenance (O&M) cost escalation rates and the largely unindexed revenue base.

The PPP-8, PPP-9 and PPP-10 projects are also exposed to heightened payment delay risks associated with long-term transmission customers in the Indian state of Rajasthan, which could result in increased working-capital requirements.

The restricted group's financial profile is stronger than that commensurate with a 'BBB-' rating for this portfolio of assets, reflecting considerable rating headroom at the current level. The credit assessment is constrained by India's (BBB-/Stable) 'BBB-' Country Ceiling.

ATL RG1's credit assessment is not directly affected by the alleged malpractices at India's Adani group highlighted in Hindenburg Research's report due to the ringfenced nature of these assets.

The offshore bond holders benefit from a robust cash flow waterfall mechanism and covenants that restrict cash upstreaming to shareholders and limit indebtedness.

Moreover, ATL RG1 has a 30-year largely amortising bond. There are no material short to medium term debt maturities reducing near-term liquidity and refinancing risks. The shareholder loan at ATL RG1 level is also minimal.

Adani Transmission (ATL) is the transmission and distribution business arm of the Adani Group. ATL is the country's largest private transmission company with a cumulative transmission network of 18,795 ckm, out of which 15,371 ckm are operational and 3,424 ckm are at various stages of construction.

The company's consolidated net profit surged 72.8% to Rs 478 crore on 15.8% rise in revenue to Rs 3,037 crore in Q3 FY23 over Q3 FY22.

The scrip was locked in 5% lower circuit at Rs 711.90.

Since the release of the infamous Hindenburg Research reports which alleged malpractices by the Adani group, the stock has continued to witness steep selling pressure.

It has tumbled 74.17% in twenty-two trading sessions, from its closing price of Rs 2,756.15 recorded on 24 January 2023.

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