Fitch affirms ‘BBB-’ rating to Adani Ports; maintains stable outlook

Global brokerage firm Fitch Ratings on Thursday affirmed a 'BBB-' rating to Adani Ports and Special Economic Zone Limited's (APSEZ) Long-Term Foreign-Currency Issuer Default Rating (IDR) with a 'stable' outlook.

“The affirmation reflects Fitch's view that the Hindenburg report alleging governance issues at the Adani group has a limited near-term impact on APSEZ's cost of funding and access at the current rating level,” the foreign brokerage house in a report.

The agency expects APSEZ's financial flexibility to remain supported by its portfolio of seaports, which comprises strategically located assets with best-in-class operational efficiency and an adequate liquidity position. “APSEZ's internal cash surplus is sufficient to cover its near-term operations and debt obligations as well as its budgeted capex,” it said.

On debt structure, the brokerage said that APSEZ's consolidated debt comprises mainly U.S. dollar and Indian rupee bullet bonds. It also has limited exposure to floating interest rates due to its use of fixed-rate bonds and bank loans. “The bonds do not benefit from restrictive financial covenants or reserve accounts and the company relies on natural hedging to manage foreign-exchange risk. Nearly a third of its revenue is in U.S. dollars, which should be sufficient to cover its U.S. dollar debt servicing,” it said.

Fitch has revised the ESG relevance score for governance structure and group structure to '4' from '3' to reflect governance weaknesses at the sponsor level and other Adani group entities. “We expect low contagion risk on APSEZ, if any, from the Indian securities regulator's investigation, and will treat any material adverse development with a higher-than-expected impact on APSEZ's financial flexibility as an event risk. “

“In the longer term, maintaining strong access to financing and cost of funding will be key drivers for APSEZ's ratings,” it added.

APSEZ handled about 24% of India's total cargo volume in 9MFY23, with Mundra continuing as the largest container handling port. Cargo throughput increased by 19% yoy while revenue rose by 16% after the consolidation of revenue from Gangavaram Port, which was previously an associate of APSEZ. Excluding Gangavaram Port, APSEZ's cargo throughput revenue increased by 7% yoy, in line with the cargo throughput increase. Mundra and Krishnapatnam Port contributed the highest cargo growth, driven by coal (14% yoy) and containers (5% yoy).

In the previous report released in February, Fitch Ratings had said there was no immediate impact on the ratings of the Adani entities and their securities following a “short-seller report” alleging malpractices at India’s Adani group, and expects no material changes to its forecast cash flow.