Domestic factors, govt action key to capital flows: Moody's

Moody's Investors Service today said domestic factors and government policies will largely decide the course of capital flows in the country and the future economic growth, even as the impending US Fed rate hike may dampen investor sentiment.
"The answer lies in the extent to which the government policies can animate domestic sources of growth and maintain financial stability. Domestic factors will be the key determinants of the broad direction of capital flows into and out of these countries in 2016 - in particular whether their respective policies appear likely to revive growth," it said.
"Although markets may have largely discounted US monetary tightening and slower growth in China,... India may still see investor demand weaken whenever unfavourable data are released or even when anticipated global events, such as a rate hike by the US Federal Reserve, occur," the agency said in a report.

Moody's said the India's depreciating currency illustrated the impact of weaker global growth and tighter financing conditions.
The US Federal Reserve is likely to hike rates in the week.
The rating agency said it has maintained positive outlook through a period of external challenges because authorities in India are making progress in addressing long-term constraints on their respective credit profiles.

"In India, the focus is on greater control over inflation and improving the operating environment for private investment," it said.
Moody's said India's credit profiles have strengthened since the late nineties. Robust global growth and low interest rates facilitated credit improvements.

"But the external environment is now less supportive, so sovereign credit trends will hinge on whether governments can animate domestic sources of growth without increasing financial risks," it said.
(REOPENS DCM 45)
AAPT's rating also considers the shortfall between the terminal's capacity of 50 million tonnes per annum (mtpa) and actual shipments, with certain mines not using their full contractual entitlements.
Adani group's plan to strengthen AAPT's capital structure over time through a combination of cash equity injections and applying future free cash flow to reduce debt levels will improve the financial profile and provide support for the rating, depending on the magnitude and timing of the proposed deleveraging, it said.

Moody's expects AAPT's ratio of funds from operations (FFO)/debt to decline below 7 per cent over the next two years before incorporating the deleveraging plan and after factoring in the possibility of reduced tariff charges on the next tariff review date.
"The rating also considers the company's debt maturity profile and associated refinance risk, with around Australian dollar 1.08 billion of debt (representing around 70 per cent of total debt) maturing in November 2018," Moody's said.
While the refinancing is more than two years away, Moody's believes AAPT's refinancing-related challenges could be complicated by the uncertainty associated with the renewal terms of AAPT's large contract with a Glencore International AG (Baa3 stable)-led joint venture, given Glencore's production cutbacks at source mines that rely on the terminal.

The contract, which represents 26 per cent of the terminal capacity, matures in 2020.
The AAPT rating is otherwise underpinned by the take-or-pay nature of its contracts with users over the entire terminal capacity which provide it with the right to pass through all operating costs and earn a rate of return on its asset base, it added.
"AAPT's proximity to the high-quality long life coal reserves in the Bowen, Galilee and Newlands regions and the terminal's essential role in the coal export chain - particularly given the limited incremental capacity at competing terminals - provides further rating support," the statement said.

The assessment factors in AAPT's current dispute with the terminal's incumbent operating and maintenance contractor -- a subsidiary of Glencore -- and the plan to appoint a substitute operator should the existing contract be terminated.
The outlook could return to stable if AAPT's ultimate shareholder implements the necessary counter measures to reduce the company's financial leverage and strengthen its capital structure, it said.