Moody's Investors Service has affirmed the ratings on eight Adani Group companies, including Adani Green. Moody’s has changed the outlook of four Adani Group companies to negative from stable while maintaining the stable outlook on the four other companies.
This development comes amid the Adani Group market rout following the release of the controversial Hindenburg report.
The Moody’s outlook for Adani Green Energy Limited (AGEL); Adani Green Energy Restricted Group (AGEL RG-1) comprising Adani Green Energy (UP) Limited, Parampujya Solar Energy Private Limited, Prayatna Developers Private Limited; Adani Transmission Step-One Limited (ATSOL); and Adani Electricity Mumbai Limited (AEML), were changed to negative from stable.
The four Adani Group companies whose ratings were maintained as stable by Moody’s are Adani Ports and Special Economic Zone Limited (APSEZ); Adani International Container Terminal Private Ltd (AICTPL); Adani Green Energy Restricted Group (AGEL RG-2) comprising Wardha Solar (Maharashtra) Private Limited, Kodangal Solar Parks Private Limited, Adani Renewable Energy (Rj) Limited; and Adani Transmission Restricted Group 1 (ATL RG1) comprising Barmer Power Transmission Service Limited, Raipur-Rajnandgaon-Warora Transmission Ltd, Sipat Transmission Limited, Thar Power Transmission Service Limited, Hadoti Power Transmission Service Limited, and Chhattisgarh-WR Transmission Limited.
Also read: Adani-Hindenburg row: What is short selling and why is it in news?
Explaining the rationale behind the ratings action, Moody’s said: “The affirmation of AGEL'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 very high financial leverage.”
According to the ratings agency, AGEL’s outlook was changed to negative after taking into consideration the company’s “large capital spending program and dependence on sponsor support, potentially in the form of subordinated debt or shareholder loans, which will likely be less certain in the current environment.”
“The negative outlook also factors in the company's significant refinancing needs of around $2.7 billion in the fiscal year ending March 2025 (fiscal 2025) and limited headroom in its credit metrics to manage any material increase in funding costs,” it added.
Moody’s then explained the affirmation of AGEL RG-1's senior secured bond rating and said its predictable revenues from a diversified set of projects in India, operating under long-term PPAs with fixed tariffs were taken into consideration. The AGEL RG-1's underlying credit quality also reflects the uneven past performance of the restricted subsidiaries' projects, and its high financial leverage, it added.
The change in the outlook on AGEL RG-1 to negative factors in the refinancing risk associated with $500 million of bonds maturing in December 2024. Moody's also recognised that the project finance structure of AGEL RG-1 provides protection from any contagion risk from the broader Adani Group.
The affirmation of ATSOL's senior secured bond ratings reflects the company's close credit linkage with its wholly-owned parent, Adani Transmission Limited (ATL), owing to the parental guarantee provided by ATL over the rated bonds and the event of default provisions linked to ATL's solvency, Moody’s said. It added, “ATL's credit profile, in turn, reflects the predictable revenue from its diversified portfolio of quality regulated or contracted transmission and distribution assets, as well as the group's aggressive growth strategy and the incremental debt required to fund its capital spending.”
The change in the outlook on ATSOL to negative, on the other hand, factors in the modest headroom in ATL's credit metrics relative to the minimum tolerance level under Moody's base case scenario, which limits the group's ability to withstand a material increase in funding cost or reduced funding access.
"The affirmation of AEML'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 ratings agency said. The change in outlook to negative reflects the likely reduction in its funding access and reduced ability to manage any material increase in funding costs given the limited headroom in its credit metrics under Moody's base case scenario.
As for the affirmation of APSEZ's issuer ratings, 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 were considered. 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 and would be able to realign its capital spending plans in the event of a liquidity squeeze.
The stable outlook on APSEZ, AICTPL, AGEL RG-2 and ATL RG1 also assumes that there will be “no material adverse effect from any potential regulatory or legal investigations or increase in related party transactions to provide funding support to other group entities”, Moody’s explained.