Fitch, Moody’s cut rating outlook on Adani group firms to negative from stable

US-based rating agencies Moody’s and Fitch on Tuesday lowered their outlook for bonds of Adani group companies to negative from stable, following the bribery charges and indictment of certain board members of Adani Green Energy Ltd (AGEL), including group chairman Gautam Adani, by the US Securities and Exchange Commission, and Department of Justice.

Last week, S&P cut the outlook on five Adani companies, including Adani Ports and Special Economic Zone (APSEZ), to negative, following the indictment by the US authorities.

The adverse rating action could hurt the conglomerate's ability to raise fresh funding, as well as increase its cost of capital.

Also read | Adani ‘bribery’ case: Andhra Pradesh likely to suspend Adani Group’s power supply deal

Adani stocks fell sharply after the rating actions, with Adani Green Energy, which is at the centre of the alleged $250 million scheme to bribe Indian state government officials to secure power supply contracts, declining the most, by 7.3%, on Tuesday.

The Adani Group has strongly denied the US allegations, calling them "baseless" and reaffirming its commitment to maintaining the highest standards of governance and compliance.

On Monday, the conglomerate said it has enough cash to service debt at all group firms in the next 12 months, in a bid to soothe investors’ nerves. Combined cash flows in the past 12 months were more than the annual debt repayments projected for each of the next 10 financial years, the Adani Group said in a statement. This, it said, highlights that its earnings can manage its debt repayment obligations.

Despite the group's assertions about its financial health, Moody’s changed the outlook on seven Adani group companies to negative from stable, saying that the US indictments could weaken the group's access to capital and increase its cost of funding. These companies include two units each of Adani Green Energy and Adani Transmission, Adani Electricity Mumbai Ltd, Adani Ports and Special Economic Zone Ltd (APSEZ), and Adani International Container Terminal.

Also read | No money given to Adani so far for Sri Lankan port project, says US development agency

Earlier, Fitch had placed the bonds of Adani Ports, North Queensland Export Terminal, and Mumbai International Airport Ltd on watch for a possible downgrade. 

Further, it maintained the ratings of Adani Green Energy’s restricted groups, but changed the outlook to negative from stable. It said that the negative outlook reflects the risk of higher funding costs and potential materialization of weakness in corporate governance and internal controls.

“We will monitor the ongoing investigations for developments impacting financial flexibility of the rated entities, particularly any material deterioration in near- to medium-term funding access, including their ability to roll over existing credit lines or access new facilities, as well as potentially higher funding costs,” said Fitch in its statement.

Fitch’s downgrade highlighted the risk of tighter funding access and potential increases in borrowing costs for the group. However, the rating agency affirmed ratings for some of the restricted groups, citing ring-fencing structures and stable cash flows as mitigating factors.

Read more | TotalEnergies halts Adani investments; GQG bets on Indian govt backing amid US bribery charges

“We believe the latest developments could hinder the group's funding access. This can significantly affect the growth plans for certain rated entities like APSEZ, though it has some flexibility in its capex plans. Increased reliance on onshore funding, following reduced offshore funding, could heighten refinancing risk over the medium term, and a material rise in funding costs could reduce operating cash flows,” said Fitch.

That said, Fitch expects the near-term liquidity of the rated entities to be sufficient, as there are no significant scheduled debt.

The total market capitalization of the Adani group companies have fallen by ₹65,392 crore since the US indictment of Gautam Adani and seven other executives on 21 November. As on 26 November, the group's total market capitalization stood at ₹11.4 trillion.