S&P has affirmed the ratings of Adani Ports and Special Economic Zone Ltd. and Adani Electricity Mumbai Ltd., while revising its outlook to ‘Stable’ from ‘Negative’, due to strong business fundamentals and robust cash flows. The global rating agency said that the conclusion of most regulatory investigations into the Adani Group without evidence of wrongdoing has reduced downside risk.
Both Adani Group companies enjoy good competitive positions, healthy cash flows, and adequate liquidity to meet their debt-servicing requirements, it said in a note on Jan. 22. “We believe the group remains exposed to some governance risks as part of a large family-owned conglomerate with ambitious growth plans and related-party transactions,” it said.
Improved funding access has alleviated concerns about funding challenges and refinancing risk for the companies, S&P said. “The group has demonstrated access to equity- and asset-backed debt funding over the past several months since the short-seller report.”
The stable outlook for Adani Electricity, a subsidiary of Adani Energy Solutions Ltd., is based on the expectation that the ratio of operating cash flow to debt will improve to above 10% over fiscal 2024 and 2025, S&P said. A rebound in power demand, stable tariff collections, and the recovery of lower revenue collected during fiscal 2021 and 2022 would drive this recovery, it said.
“The stable outlook also assumes that the parent, Adani Energy Solutions, manages its growth, spending and leverage such that its funds from operations-to-debt ratio remain above 9% on a sustainable basis.”
S&P Ratings expects that Adani Ports will have stable operations and that management will adjust its growth aspirations, shareholder distributions, and investments. “This should help it achieve a ratio of adjusted net debt to Ebitda of about 3–4 times over the next two years,” it said.
S&P said that it assumes that Adani Ports will not undertake significant related-party transactions outside the normal course of business.