Fitch revises rating outlook on Adani Energy’s power unit, first by global agency since US Indictment

In a positive development for the Adani group, ratings agency Fitch Ratings has revised Adani Electricity Mumbai’s (AEML) rating outlook to ‘negative’ from ‘rating watch negative’. This marks a positive shift after the ratings agency's December 2024 revision of the outlook for some Adani group entities to ‘ratings watch negative.’

Fitch says the Adani Group has shown "adequate funding access" since the US indictment of certain board members of another group entity, Adani Green Energy Ltd, on November 20, 2024. It also stressed that the risks associated with the group's liquidity and funding requirements have "moderated", but the proceedings and outcome of the US investigations could reveal that the group's corporate governance practices are weaker than it expected and lead to negative rating action in the near to medium term.

"Fitch will monitor the investigations for any evidence of weakness in the Adani entities' governance practices and internal controls as well as the impact on the financial flexibility of AEML," says the ratings agency.

As per Fitch, the group-related risks to AEML's financial flexibility are "lower" than for Adani Energy Solutions Limited (AESL, BBB-/Negative), which owns 74.9% of AEML, due to AEML's "limited additional funding and refinancing requirements" over the near to medium term.

The rating has been affirmed on AEML US dollar senior secured notes due 2030, its $2 billion global medium-term note programme and the notes issued under the programme. Since the US Indictment in November 2024, the Adani Group Entities have shown consistency on the credit profile and business performance.

The rating firm has also highlighted the positive drivers that have led to this positive developments, including Adani Electricity Mumbai’s (AEML) Favourable Regulatory Framework, Steady EBITDA, Adequate Financial Profile, Steady Leverage, Lack of Cash flow Visibility, Lower Counterparty risk, Structural Enhancements) based on which this positive action has been taken.

Adani Electricity Mumbai, a subsidiary of Adani Energy Solutions and owner of the Mumbai city distribution business, which was acquired from the debt-laden Reliance Infrastructure, has seen a massive turnaround since its acquisition in 2017-18 by the Adani Group, says the ratings agency.

AEML, aside from its supply business, does not face sales volume risk and its return on capital is ensured by regulations as long as it hits availability benchmarks, says the report, adding that it has shown a long-term cash flow visibility.

The release notes that the Adani group has made strong investments in Mumbai’s distribution business to ensure uninterrupted supply to the city’s growing energy demand. "Over 30% of the city’s energy supplied by Adani Group is renewable power — one of the highest among global megacities such as New York, Tokyo and Rio."

After an initial caution on the outlook by rating agencies post-November indictment, the Adani Group entities have been again seeing upgrades on the continued performance. In February, domestic rating agency CRISIL also revised the outlook to either ‘positive’ or ‘stable’ for other Adani Entities post-US indictment, including Adani Green and Adani Power. Ratings for Adani Power were upgraded to ‘AA/stable'.