S&P Global Ratings has revised its outlook on Adani Electricity Mumbai Ltd (AEML) to negative from stable.
At the same time, it affirmed BBB-minus long-term issuer credit rating on AEML and BBB-minus long-term issue rating on the company's senior secured notes.
"The outlook revision on AEML reflects our expectation of a potential deterioration in its parent's credit quality," said S&P.
It said the creditworthiness of AEML's parent Adani Transmission Ltd (ATL) group could weaken owing to elevated spending and higher leverage.
"We believe the consolidated ATL group which includes ATL and all its subsidiaries will face rising leverage over the next two years as it undertakes significantly higher spending to grow its asset base."
The consolidated ATL group's growth aspirations and past acquisitive track record could delay the recovery in its financial ratios. Earnings contribution from project commissioning should help drive its FFO-to-debt ratio to above 9 per cent from fiscal 2024.
However, spending that is higher than anticipated will likely add to the strain on the group's balance sheet and stall deleveraging.
"Moreover, we view the funding mix of potential spending as a key driver of its future leverage and credit quality, as continued debt-funded spending and an aggressive risk appetite will weigh on the group's creditworthiness."
( With inputs from ANI )
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