“The change reflects the company’s lower volume growth, mainly because of lower coal volumes, and an increase in capital expenditure (capex) and financial leverage, compared to our previous expectations,” it stated, quoting Abhishek Tyagi, a Moody’s vice-president and senior analyst.
The sharp decline in coal cargo for APSEZ’s ports, because of reduction in imports, together with some state-owned utilities shifting their cargo to government-owned ports, is likely to have material impact on the APSEZ growth trajectory, said Tyagi. “Such a decline reduces the company’s ratings headroom.”
This trend was visible in FY16, with APSEZ’s overall cargo growth up only five per cent year-on-year, mainly due to an eight per cent year-on-year decline in coal handled by its ports. The tepid volume growth was accompanied by higher debt, due to a rise in capital expenditure and in loans and advances. Moody’s says it has noted APSEZ’s plan to focus more on container volumes to offset the decline in coal volumes. APSEZ’s financial leverage as measured by funds from operations to debt for the year ended March was around 15 per cent, a level that is at the low end of the Baa3 rating tolerance, and lower than Moody’s original expectation.
The credit metrics are likely to remain under pressure in FY17, given its substantial capex plan and payments due on its acquisition of the Katupalli port (near Chennai).
The agency said the ratings could be downgraded if coal volumes continue to fall, and such a decline is not offset by an increase in container volumes, resulting in the company’s financial metrics deteriorating beyond the parameters of its Baa3 ratings category.
APSEZ’s ratings are predicated on a reduction in the company’s existing exposure to related parties within the broader Adani Group.
Moody’s said it understood from the management that these transactions would be unwound over the next 12-18 months. A failure to do so would put pressure on the ratings.