S&P Global Ratings slashes outlook on Adani Ports to ‘negative’

A U.S. indictment of three board representatives of Adani Green Energy could affect investor confidence in other Adani Group entities because the founder is on the board of multiple entities within the group, thereby potentially impairing their funding access and increasing their funding costs, according to S&P Global Ratings.

Bribery charges against Gautam Adani and senior Adani Group leadership in the U.S. could further raise questions regarding the management and governance of various Adani group entities, the rating agency says.

“Because of the potential impact across the wider Adani Group, we revised to negative the outlook on Adani Electricity Mumbai Ltd and Adani Ports and Special Economic Zone Ltd. We also affirmed our 'BBB-' ratings on these entities,” says S&P. “The negative outlook on these entities indicates that, in our view, their cash flows could be materially affected if their funding access weakens, their funding costs rise significantly, or the allegations are proven, in addition to our assessment of their governance and business profiles.”

The allegations could renew questions over the group's governance practices and damage its reputation, it says.

News of the indictment broke overnight, and thereafter, equity and bond prices across Adani group companies have fallen sharply. The group cancelled a $600 million concluded bond sale. Adani Group has denied the allegations and asserted that they are baseless.

“The group will need regular access to both equity and debt markets given its large growth plans, in addition to its regular refinancing. We believe domestic, as well as some international banks and bond market investors, look at Adani entities as a group, and could set group limits on their exposure. This may affect the funding of rated entities,” it says.

“If allegations of illegal activities or misleading statements prove true, we could assess the group's governance more negatively,” cautions the rating agency. “This is because ownership of most Adani Group entities is held by the same promoters, related-family entities, and trusts. The chairman of AGEL, one of the board members under investigation, is the founding promoter and is on the board of multiple Adani group entities. The presence of Adani family members among the group's boards of directors and senior management (including CEOs) means they can significantly influence the business strategy, growth plans, financial policies, reporting, and disclosures of operating entities. Different group companies share some of the same managers among the treasury, finance, and technical divisions,” it says.

S&P Global Ratings believes that if the allegations are proven, it could have some bearing on the company's operations over time. “This could occur if there is a review of relationships with the government agencies that award concessions and licenses, or with offtakers and counterparties such as Solar Energy Corp. of India (SECI), state distribution companies, and joint venture partners.

That said, the Adani companies we rate have long-established infrastructure assets with strong fundamentals and cash flows. This is underscored by the entities' good competitive position (Adani Ports) or regulated assets with assured returns (Adani Electricity). The firms currently have sufficient cash flows, adequate liquidity, and face no significant refinancing needs. Adani Ports repaid its maturities in July 2024 from own funds,” it says.