Moody’s slashes rating outlook on seven Adani companies from stable to negative amid US bribery scandal

Ratings agency Moody's said on Tuesday that it has cut the outlook on the ratings of seven Adani entities to 'negative' from 'stable', citing the US indictment of Chairman Gautam Adani and others on alleged bribery charges, while Fitch Ratings put some bonds of the conglomerate on negative watch.

Moody's affirmed the ratings on all seven entities -- Adani Ports and Special Economic Zone Ltd, two limited restricted groups of Adani Green Energy Ltd, Adani Transmission Step-One Ltd, Adani Transportation Restricted group 1 (AESL RG1), Adani Electricity Mumbai Ltd and Adani International Container Terminal Pvt Ltd.

"These rating actions follow the indictment of Adani Green Energy Ltd's (AGEL) chairman Gautam Adani and several senior management team members by the US Attorney's Office in a criminal case and the filing of charges by the US Securities and Exchange Commission (SEC) in a civil case," Moody's said.

The charges and allegations include bribery of Indian government officials, securities and wire fraud; conspiracy to violate the US Foreign Corrupt Practices Act and obstruct justice; false statements made in annual reports, and false statements made to the US government in relation to its investigation into the group.

"The change in the outlook on the seven Adani entities to negative considers the indictment of Adani and other senior Adani executives on bribery and other charges, which will likely weaken Adani Group's access to funding and increase its capital costs," it said.

The rating action, Moody's said, recognises the possibility of broader weaknesses in the governance structure across the rated Adani group entities as well as potential operational disruptions, including on their capital spending plans, while legal proceedings are going.

"Although the allegations and the charges made by US Attorney's Office and SEC pertain to AGEL's chairman and senior management team members, we believe they could have a broader credit impact on all rated Adani Group issuers, given Gautam Adani's prominent role as chairman of each of the rated entities or their parent companies as well as the controlling shareholder," it said.

The project finance entities of the group are not exposed to refinancing risk and do not require any substantial capital investment, it said, adding that they remain exposed to the potential governance weakness and the risks that could arise from any negative findings in the ongoing legal proceedings.

Stating that an upgrade of the ratings is unlikely in the near term, given the negative outlook on all seven issuers, Moody's said it could change the rating outlooks to stable if legal proceedings conclude clearly with no material negative credit impact.

"A stable outlook will also be predicated on the group maintaining appropriate financial metrics for the respective ratings, demonstrating its retained access to funding to meet growth initiatives and refinancing requirements, and strengthening its governance practices across the group entities," it added. "We could downgrade the ratings of the group entities if the legal proceedings lead to a material disruption to their operations or access to capital. A downgrade is also likely if the group is unable to address or rectify governance issues associated with the ongoing legal proceedings".