Moody’s reaffirms ratings of 8 Adani firms; cuts outlook on 4

Global ratings agency Moody's Investors Service has today affirmed the ratings on eight Adani Group companies. However, at the same time, it has changed the outlook on four issuers to 'negative' from 'stable', while maintaining the 'stable outlook' on the other four companies. The development comes amid a fall in the Adani group shares after the release of an adverse report by US-based short seller Hindenburg Research.

According to Moody's, these ratings actions follow the significant and rapid decline in the market equity values of the Adani Group companies since the release of the report on February 24, 2023. The companies, whose ratings have changed to 'negative' from 'stable', are Adani Green Energy Ltd (AGEL) (Ba3 ratings affirmed); Adani Green Energy Restricted Group (AGEL RG-1) comprising Adani Green Energy (UP) Limited; Parampujya Solar Energy Private Limited; Prayatna Developers Private Limited (Ba2 ratings affirmed); Adani Transmission Step-One Limited (ATSOL) (Baa3 ratings affirmed); and Adani Electricity Mumbai Limited (AEML) - (Baa3 ratings affirmed).

The four group companies on which Moody's outlook remains 'stable' 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.

On affirming the ratings on eight Adani group companies, Moody's said the affirmation of AGEL's senior secured bond rating reflects its predictable cash flow, backed by long-term power purchase agreements, its large and diversified portfolio of solar and wind generation projects, and its very high financial leverage.

However, the change in the outlook to 'negative' on AGEL considers the "company's large capital spending programme 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, said Moody's.

Similarly, the affirmation of AGEL RG-1'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, said Moody's. However, 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.

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. However, the change in the outlook considers 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. But 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.

Meanwhile, shares of Adani group companies continued to stay under pressure on Friday after index provider Morgan Stanley Capital International (MSCI) cut the free float designations of four Gautam Adani-controlled securities, a move which could impact their index weightage. MSCI has lowered the free floats of Adani Enterprises, Adani Total Gas, Adani Transmission, and ACC, while free floats of the remaining companies have been kept unchanged. The changes will be effective from March 1.