JP Morgan ‘Overweight’ on four Adani bonds; says group’s liquidity needs ‘manageable’

Adani group’s international bonds, which witnessed short-term volatility after the U.S. SEC and Department of Justice (DoJ) indictments of some management and board members linked to Adani Green, seem to have settled, JP Morgan says in a latest report. The U.S. investment banker has given 'overweight' rating on four Adani group bonds, saying that they have ability to scale and grow using internal cash flows which reduces the scope for credit stress.

The agency has assigned 'overweight' rating on three bond issues of Adani Ports & SEZ and one by Adani Electricity Mumbai Ltd (a subsidiary of Adani Energy Solutions Ltd). It has given ‘neutral’ on other five Adani bonds and ‘underweight’ on one bond issued by Adani Green Energy Ltd.

The brokerage says that key upside risks to its neutral rating are "if there is a quick resolution of the SEC/DoJ charges; successful refinancing of the upcoming bonds and credit facilities; and improved operating performance.

On the other hand, the key downside risks to its 'overweight' and 'neutral' ratings are an adverse outcome from the SEC/DoJ indictment and jury trial; any related-party transactions within the group and promoter entities; and debt-funded M&A or capex-led growth leading to weaker credit metrics, it says.

The U.S.-based brokerage house opines that billionaire Gautam Adani-led group companies’ liquidity needs seem “manageable”, barring Adani Green, as most of them have leverage of less than 5x.

“Spreads of the group’s bonds, since then, seem to have settled, widening by about 100-200bps, with short tenor seeing more spread widening due to higher dollar prices,” says foreign brokerage in a FAQ report on Adani group entities.   

On average, international bonds of Adani Ports and Special Economic Zone (APSEZ) have widened by around 140 basis points (bps), Adani Transmission Ltd (ADTIN) by 180bps, Adani Electricity Mumbai Limited (ADANEM) by 140bps, and Adani Green Restricted Group (RG) bonds by 150-160 bps.

The agency believes that key to watch among the bond-issuing entities are mainly Adani Green, which has a decent-size loan ($1.1 billion) due in March 2025, which has been extended by international banks mainly. The few other near-term maturities for offshore debt at various group companies include Adani Ports, Adani Green, Adani Airport Holdings (100% owned by Adani Enterprises), Ambuja Cement bidco entities and Adani Energy Solutions.

For Adani Ports, there is $290 million of facility due in January 2025, which is denominated in ILS (Israel Shekels) and backed by a pledge of Haifa Port. The Haifa Port, a 70-30 joint venture between APSEZ and Israel-based Gadot Group, handled about 11.5 million metric tonnes (mmt) cargo in FY24.

Except for the APSEZ bonds, other Adani group bonds are secured in nature and have various covenants, including cash flow waterfall mechanism, distributions linked to graded DSCRs and other debt sizing covenants, which do offer protection from cash leakage out of project companies, the report notes.

As of September 24, Adani Green, Adani Energy Solutions, and Adani Ports have USD bonds outstanding. In terms of debt mix, most of the bond issuing entities have significant exposure to offshore debt (bonds and loans).

“Adani Green has about 44% exposure to offshore debt as of FYE24, while APSEZ has about 82% (mostly via USD bonds). Including the foreign currency shareholder sub-debt for AEML, total foreign currency borrowings are 85% of the total debt. In terms of security, APSEZ has the least share of secured debt with about 77% of the total debt as of FYE24 being unsecured (mostly comprising USD bonds),” JP Morgan says in its report.

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