Moody's revises outlook on 4 Adani firms to 'stable' from 'negative'

In a show of confidence, Moody’s Investors Service on Tuesday revised the outlook on four Adani Group companies to ‘stable’, a year after revising it to ‘negative’ following a unverified report by US-based short seller, Hindenburg Research.

The global ratings agency changed the outlook to ‘stable’ on Adani Green, Adani Electricity Mumbai, Adani Transmission, and Adani Energy Solutions as the financial metrics of these companies improved significantly in the past 12 months.

Since February 2023, Moody's said the group completed several debt transactions, including refinancing as well as obtaining new loan facilities, demonstrating its continued access to debt capital at a reasonable cost.

“At the same time, several high profile equity transactions by large institutional and strategic investors, such as GQG and Qatar Investment Authority, also demonstrated the Group's continued equity market access,” it said.

While an investigation by the Securities and Exchange Board of India (Sebi) is still ongoing, the Supreme Court's decision to entrust the markets regulator to complete the probe on the Adani Group and the court's view that there is no apparent regulatory failure attributable to Sebi have curbed the potential tail risk in a downside scenario, it said.

Moody’s said the affirmation of Adani Green Energy's senior secured bond rating reflects its predictable cash flow backed by long-term power purchase agreements (PPAs); its large and diversified portfolio of solar and wind generation projects; and its high financial leverage.

“The change in outlook to stable from negative considers AGEL's improved financial flexibility and reduced refinancing risk after the company announced plans to repay the $750 million senior notes from financial reserves and equity proceeds from the sale of a stake in a joint venture to TotalEnergies SE and a preferential allotment to the Adani family,” Moody’s said.

The affirmation of AGEL's senior secured bond rating considers its predictable revenues from a diversified set of projects in India, operating under long-term PPAs with fixed tariffs. AGEL’s underlying credit quality also reflects the uneven past performance of the restricted subsidiaries' projects and its high financial leverage.

The change in outlook to stable from negative considers Moody's view that AGEL will have continued market access to refinance the senior notes due December 2024.

This view is further evidenced by the Adani Family's track record of supporting Group companies in general and the recent equity preferential allotment in AGEL specifically, it said.

On Adani Transmission Step One, Moody’s said the affirmation of ATSOL's senior secured bond ratings reflects the company's close credit linkage with its wholly-owned parent, Adani Energy Solutions (AESL), owing to the parental guarantee provided by AESL over the rated bonds and the event of default provisions linked to AESL's solvency.

AESL's credit profile, in turn, reflects the predictable revenue from its diversified portfolio of quality regulated or contracted transmission and distribution assets; exposure to execution risks associated with the group's aggressive debt-funded growth strategy, and high financial leverage.

The stable outlook reflects Moody's expectation that AESL will be able to deliver its substantial planned capital expenditure – including its material investment to roll out smart meters – on time and within the budget, it said.

The affirmation of Adani Electricity Mumbai’s senior secured bond ratings reflects the predictable revenue from its integrated utility business in Mumbai, all of which are regulated. At the same time, the rating affirmation considers AEML's elevated financial leverage partly due to its large capital spending in recent years.

The change in outlook to stable from negative reflects AEML's improved financial flexibility as a result of a recently completed bond buyback, management's decision to minimise the use of debt to fund capital expenditure in the past two years, and higher capital expenditure allowance approved by its regulator during the mid-term review process, it said.

Moody’s said the affirmation of APSEZ's issuer ratings considers the company's strong market position as the largest port developer and operator in India by cargo volume and its strong liquidity and financial profile.

“The stable outlook on the ratings reflects Moody's expectation that APSEZ would continue to generate relatively steady cash flow over the next 12-18 months,” it added.