Some of Adani Group Projects discretionary in nature, says ICRA

Adani Group's large debt-financed capex programme remains a challenge, and some of them are discretionary in nature. Credit rating agency ICRA Ltd  said on Wednesday. 

The rating agency also said it would continue to monitor and review the ratings based on the movement in credit metrics of the Adani Group's rated entities and the impact of the latest events on their financial flexibility.

In a note titled 'Adani Ports and Special Economic Zone Limited: Update on Material Event', ICRA said on January 24, the US-based Hindenburg Research published a report containing several adverse observations regarding accounting practices, related-party transactions, concentrated share ownership by a few overseas investment firms, and share price movement of the Adani group of companies, including Adani Ports and Special Economic Zone Ltd. (APSEZL).

"Subsequent to the release of this report, the share prices of all the listed Adani Group companies, including APSEZL, have witnessed a steep decline," ICRA said.

Adani Group released their response to the observations made by Hindenburg, refuting the allegations and stating that most of the observations relate to matters that the Adani portfolio companies in the past have duly disclosed.

"While the large debt-funded capex programme of the group remains a key challenge, ICRA notes that some of the planned capex is discretionary in nature and can be deferred depending on the liquidity position," the credit rating agency said.

"ICRA is monitoring the impact of these developments on its rated portfolio in the Adani Group, especially the financial flexibility of the group, with key monitorable being access to domestic and international capital markets and banking channels, pricing of debt, tightening of debt covenants, recall or acceleration of debt facilities, and refinancing," it said.

"While the ICRA-rated Adani Group entities do not have any immediate refinancing requirement, it is expected for some of the entities from FY2025 onward," the rating agency said.

"However, comfort is drawn from the high visibility on cashflows for these entities, supported by the long tenure of the off-take contracts in the case of Adani Transmission Ltd. (ATL), favourable demand prospects, dominant market position, and long-term customer contracts for APSEZL, and favourable economics of conversion in the CGD (city gas distribution) sector for Adani Total Gas Ltd. (ATGL), and the strong liquidity position maintained by the group," ICRA said.

"ICRA also notes that the planned follow-on public offer (FPO) of Adani Enterprises Limited has been fully subscribed as per the disclosure on January 31, 2023," it said.

"ICRA would continue to monitor and review the ratings based on the movement in credit metrics of the rated entities and the impact of the latest events on their financial flexibility,"  the rating agency said.