S&P Upgrades Adani Ports, Adani Electricity Outlook To Stable

S&P Global Ratings upgraded its outlook on Adani Ports & Special Economic Zone Ltd. (APSEZ) and Adani Electricity Mumbai Ltd. (AEML) to stable from negative as well as affirmed its ratings on the entities and their debt.

The stable outlook reflects strong business fundamentals and robust cash flows for APSEZ and AEML, a subsidiary of Adani Energy Solutions Ltd., in the next 12 to 24 months, S&P said in a statement.

"We believe the conclusion of most regulatory investigations into the Adani Group without evidence of wrongdoing has reduced downside risk," the rating agency said. Repayment of all promoter loans linked to share prices, equity, and bank loans raised by multiple group entities at competitive rates reflects restored access to funding, it added.

S&P said the negative market sentiment has also largely subsided, as shown by a recovery in bond yields and share prices of Adani Group entities.

The rating agency noted the rated entities APSEZ and AEML enjoy good competitive positions, healthy cash flows, and adequate liquidity to meet their debt-servicing requirements.

S&P, however, said 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 expects the rated entities to not undertake significant related-party transactions outside the normal course of business.

ADANI PORTS

S&P said the stable outlook reflects its expectation that APSEZ will have stable operations, and that management will adjust its growth aspirations, shareholder distributions, and investments.

This should help the company achieve a ratio of adjusted net debt to EBITDA of about 3x-4x over the next two years, it added.

The rating agency expects APSEZ's ratio of funds from operations (FFO) to debt to increase to 21%-24% over FY24 and FY25 from about 18.5% in FY23. This will be driven by higher earnings led by cargo volume growth, tariff escalations, commissioning of new projects, and expansion of its logistics business, it said.

S&P said the full-year earnings contributions from assets acquired in FY23 such as Haifa Port, Karaikal Port and Ocean Sparkle Ltd. will also support the growth.

ADANI ELECTRICITY

The rating agency said the stable outlook reflects its expectation that AEML's ratio of operating cash flow (OCF) to debt will improve to above 10% over FY24 and FY25.

S&P said that a rebound in power demand, stable tariff collections, and recovery of lower revenue collected during FY21 and FY22 under the regulatory mechanism would drive this recovery. It expects OCF-to-debt to recover to about 14.5% in FY24 and decline slightly to 12.2% in FY25.

The rating agency said it also expects the company's FFO-to-debt ratio will recover to about 7%-8% in FY24.

The stable outlook also assumes that the company’s parent Adani Energy Solutions manages its growth spending and leverage, such that its FFO-to-debt ratio remains above 9% on a sustainable basis, according to the statement.

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