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Moody’s Revises Outlook on Adani Group Companies: From Negative to Stable Amidst Market Turbulence

13th February, 2024| By Business Desk
Adani Arena | Credit: Wikimedia Commons
  • Moody’s Investors Service has revised the outlook on four Adani Group companies from ‘Negative’ to ‘Stable’, a year after downgrading them due to concerns highlighted by a short-seller report.
  • The companies affected by the change include Adani Green Energy, Adani Green Energy Restricted Group, Adani Transmission Step One, and Adani Electricity Mumbai.
  • Moody’s cites the completion of debt transactions and equity investments from institutional and strategic investors as factors indicating the Adani Group’s continued access to capital markets.
  • However, Moody’s also changed the outlook to ‘Negative’ for four other Adani Group companies due to concerns over governance issues and financial metrics.
  • The potential for an upgrade to a ‘Stable’ outlook depends on the companies’ ability to access capital markets effectively and implement measures to preserve credit metrics.

Moody’s Investors Service, a global ratings agency, has recently made significant revisions to its outlook on several Adani Group companies. Initially downgraded to ‘Negative’ following concerns raised by an American short-seller, Hindenburg, Moody’s has now upgraded the outlook of Adani Green Energy, Adani Green Energy Restricted Group (AGEL – RG-1), Adani Transmission Step One, and Adani Electricity Mumbai to ‘Stable’. This shift indicates a more optimistic view of these companies’ financial prospects compared to the previously pessimistic outlook.

The revision comes after a period of scrutiny prompted by Hindenburg’s report, which led to substantial declines in the market value of Adani Group securities. Moody’s had cited concerns over these companies’ access to capital and potential increases in capital costs in its initial downgrade in February 2023. However, subsequent developments have demonstrated the Group’s ability to navigate these challenges. Moody’s noted that the Adani Group has successfully completed various debt transactions, including refinancing and obtaining new loan facilities. This reflects the Group’s continued access to debt capital at reasonable costs, reassuring Moody’s about their financial stability.

Additionally, the Group’s ability to attract high-profile equity transactions from institutional and strategic investors like GQG and Qatar Investment Authority further solidifies its position in the market. These transactions highlight the continued confidence of investors in the Adani Group’s equity market access and potential for growth.

However, not all companies within the Adani Group have received positive revisions. Moody’s has also changed the outlook on four Adani Group companies to ‘Negative’ from ‘Stable’. These include Adani Green Energy Limited (AGEL), Adani Green Energy Restricted Group (AGEL RG-1), Adani Transmission Step-One Limited (ATSOL), and Adani Electricity Mumbai Limited (AEML). The downgrade in outlook for these companies follows the significant decline in their market equity values after Hindenburg’s report, which raised governance concerns within the Group.

The negative outlook for AGEL reflects the company’s substantial capital spending program and its reliance on sponsor support, which may be less certain in the current environment. Moody’s also highlights AGEL’s significant refinancing needs and limited headroom in its credit metrics as additional concerns.

Similarly, the negative outlook for AGEL RG-1 considers the refinancing risk associated with bonds maturing in December 2024. Moody’s acknowledges the project finance structure of AGEL RG-1 as a protective measure against broader contagion risks within the Adani Group.

For ATSOL, the negative outlook is attributed to the modest headroom in its credit metrics relative to Moody’s base case scenario. This limited capacity may hinder the group’s ability to withstand increased funding costs or reduced access to funding.

Looking ahead, Moody’s suggests that an upgrade of the ratings for AGEL, AGEL RG-1, ATSOL, and AEML is unlikely in the near term given their negative outlook. However, a change to a stable outlook could occur if these companies demonstrate improved access to capital markets, effectively implement measures to preserve credit metrics, and receive support from the promoter to reduce financial leverage or capital spending.