You are here: Home » Companies » News
Business Standard

Moody's lowers outlook on Adani Ports to negative

Negative outlook reflects company's lower volume growth mainly due to lower coal volumes and an increase in capital expenditure and financial leverage, when compared to previous expectations, says rat

Adani Ports

Aditi Divekar  |  Mumbai 

Shipping sails on, despite storm

Moody’s Investors Service has revised its outlook on Adani Ports and Special Economic Zone (APSEZ), to “negative” from the earlier “stable”.

“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.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Fri, May 20 2016. 00:25 IST