As the investigations into Adani Group stocks found no wrongdoings, S&P Global on January 22 upgraded its outlook on Adani Ports and Special Economic Zone Ltd. (APSEZ) and Adani Electricity Mumbai Ltd. (AEML) to stable from negative while affirming their credit ratings.
Regulatory investigations done by the market regulator SEBI and Supreme Court have mostly concluded without proving wrongdoing on alleged governance matters raised in a short-seller report released in January 2023. The report alleged non-compliance of minimum public shareholding, non-disclosures of related party transactions, or stock price manipulation, among others. All allegations were denied by Adani Group.
“The stable outlook reflects strong business fundamentals and robust cash flows for AEML and APSEZ in the next 12 to 24 months. We also expect the rated entities to not undertake significant related-party transactions outside the normal course of business,” said S&P Global in a release.
S&P said it believes the conclusion of most regulatory investigations into the Adani Group without evidence of wrongdoing has reduced downside risk. It added though that the group remains exposed to some governance risks as part of a large family-owned conglomerate with ambitious growth plans and related-party transactions.
Repayment of all promoter loans linked to share prices, equity, and bank loans raised by multiple group entities at competitive rates reflects restored access to funding, the rating agency said, adding both companies enjoy good competitive positions, healthy cash flows, and adequate liquidity to meet their debt-servicing requirements.
Earlier this month, the Supreme Court of India issued a judgement confirming that Securities and Exchange Board of India (SEBI) had completed its investigation of 22 of the 24 allegations against the Adani portfolio entities without any adverse findings. SEBI will complete its investigation of the two remaining allegations, relating to Foreign Portfolio Investors (FPI), within the next three months.
“We do not expect the outcomes of the two pending matters to weigh on the group's governance and funding profiles. We note that SEBI investigated similar issues in 2020, without closing the investigation,” S&P said.
S&P Global said it expects AEML's operating cash flow (OCF) to debt to recover to about 14.5 percent in FY24 and decline slightly to 12.2 percent in FY25. Higher power demand, stable tariff collections, and an approved "true-up" amount of Indian rupee (INR) 15.7 billion would drive this recovery.
“We forecast APSEZ's ratio of funds from operations (FFO) to debt to increase to 21-24 percent over FY24-25 from about 18.5 percent in FY23. This will be driven by higher earnings led by cargo volume growth, tariff escalations, commissioning of new projects, and expansion of its logistics business,” the rating agency added.
S&P said full-year earnings contributions from assets acquired in fiscal 2023, such as Haifa Port Co. (HPC) and Karaikal Port and Ocean Sparkle Ltd. will also support this growth. It expects the company's ratio of net debt to EBITDA to be 3.1x to 3.4x over FY24-25.
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