S&P revises Adani Ports, Adani Electricity outlook from stable to negative

Both run risk of deterioration in credit profile, says agency; Fitch doesn't see immediate impact

Global rating agency Standard and Poor’s (S&P) on Friday revised the outlook on Adani Ports and Special Economic Zone and Adani Electricity from ‘stable’ to ‘negative’. This follows the risk of a deterioration in the credit profile to two entities due to governance risks and funding challenges for the larger Adani Group.

"There is a risk that investor concerns about the group's governance and disclosures are larger than we have currently factored into our ratings, or that new investigations and negative market sentiment may lead to increased cost of capital and reduce funding access for rated entities," S&P said in a statement.

The agency, however, affirmed issuer and issue ratings on the entities as their business fundamentals remain intact. Their short-term liquidity is adequate, and debt maturities in the next 12 months are manageable.

On the other hand, rating outfit Fitch Ratings says there will be no immediate impact on the ratings it has assigned to Adani entities and their securities following a “short-seller report” alleging malpractices at the group.

According to Fitch, no material changes are expected to its forecast cash flow There are also no major near-term offshore bond maturities. The earliest maturity is in June 2024 for Adani Ports and Special SEZ. This will be followed by the maturity of instruments in December 2024 for Adani Green Energy Limited Restricted Group 1. Then there are maturities in 2026 and beyond for all other entities, reducing refinancing risks and near-term liquidity risks.

Fitch also said in a statement that ongoing monitoring will be looking closely at major changes to the rated entities’ access to financing or cost of financing on a long-term basis, unfavourable regulatory/legal developments or ESG-related matters that could affect credit profiles.

Hindenburg Research published a report on January 24, alleging various purported malpractices leading to a downfall in the share and bond prices of various group entities, despite the group publishing its response on January 30.

Also on Friday, Moody's Investors Service warned that the rout in Adani Group shares could hurt the conglomerate's ability to raise capital.

Fitch currently has ratings on eight entities/restricted groups within the Adani fold, including Adani Transmission, Adani Electricity Mumbai, APSEZ; Adani International Container Terminal, Adani Transmission Restricted Group 1; Adani Green Energy Restricted Group 2 and Mumbai International Airport Limited (MIAL).

Meanwhile, domestic company CARE Ratings said the observed the event (Hindenburg Report) triggered a sharp downward spiral to the combined market capitalisation of listed Adani companies.

The follow-on public offer (FPO) of Rs 20,000 crore floated by Adani Enterprises Ltd, though fully subscribed, was subsequently withdrawn following a persistent fall in the stock price on February 1. CARE Ratings in its assessment had not factored in this equity infusion.

The substantial capex being undertaken by Adani group, especially in diverse areas, exposes Adani group to inherent project execution risk, CARE Ratings said.

Nevertheless, the company management has conveyed that it is flexible enough to moderate the pace of undertaking capex, given substantial portion of such capex is discretionary in nature. Going forward, a significant increase in the external debt due to large debt funded capex shall be critical rating monitorable for Adani group of companies, it added.