Icra revises outlook for Adani Ports to Negative; rating reaffirmed

Credit rating agency Icra has revised the outlook for Adani Ports and Special Economic Zone Limited to Negative from Stable and said it will be monitoring the group's ability to raise funds from the domestic/global market as equity/debt at competitive rates.

The rating has been reaffirmed at ICRA]AA+.

The revision in outlook is on account of the deterioration in the group's financial flexibility, following a sharp decline in share prices and an increase in the yield of international bonds raised by group entities in the wake of a report published by a USA-based short-seller, Icra said.

Hindenburg Research, which held short positions in unidentified shares of Adani Group firms through its US-traded debt and offshore derivatives, on January 24 publised a report accusing the conglomerate of "brazen stock manipulation and accounting fraud" and using a number of offshore shell companies to inflate stock prices.

The group has denied allegations, calling them "malicious", "baseless" and a "calculated attack on India".

Icra noted that the group's strong financial flexibility and APSEZL's track record of refinancing a large part of its debt with borrowings (mostly from overseas debt capital markets) of longer tenures at lower interest rates were the key credit strengths, which have been adversely impacted.

Further, Icra said it sees an increased risk of regulatory/legal scrutiny on the group entities and its impact on the credit quality of APSEZL will be monitored.

However, Icra noted that APSEZL's liquidity profile remains robust and a large repayment of an international bond of USD 650 million is due only in FY25.

The rating reaffirmation continues to factor in the strong business profile of APSEZL, marked by its favourable operating characteristics, geographically spread-out footprint, diversified cargo mix and long-term customer tie-ups, Icra said.

The agency noted that the company has been acquiring key port assets as well as strategic assets across the logistics volume chain in the last few years.

This has strengthened its business profile by improving asset and cargo diversification, expanding presence across key hinterlands in the domestic market and integrating the port assets with other logistics segments, the rating agency said.

The company accounted for around 24 per cent of the overall cargo handled at the Indian ports in FY2022, with around 43 per cent share in the container segment and around 35 per cent share in coal, as per the ratings agency.

Icra also said that the share of coal has moderated in the overall cargo mix in the last few years and is expected to moderate further.

The increased asset and cargo diversification mitigates the risks associated with demand cyclicality in specific cargo segments, structural risks arising from the expected moderation in coal imports in the medium to long term and any asset specific/event risk at specific locations, it stated.

The ratings also consider the healthy profitability metrics and large cash accruals which enable it to maintain a comfortable liquidity position.

Icra said it also notes that the company is undertaking several projects, including a greenfield project at Vizhinjam in Kerala, which has witnessed delays due to various issues, including protests.

While the company is exposed to project execution risks, Icra noted that the impact on the overall credit profile of company is mitigated by the relatively small size of such projects compared to the overall asset base and net worth.

Further, the agency took note of the in-principle approval received for viability gap funding (VGF) for the project.