Adani mixed bag: S&P outlook negative, Fitch & Moody a little positive

“There have been media reports expressing concern about the exposures of Indian banks to a business conglomerate. As per the RBI’s current assessment, the banking sector remains resilient and stable,” the central bank said in a release.

It said that various parameters of banks relating to capital adequacy, asset quality, liquidity, provision coverage and profitability are healthy.

Falling 32 per cent in morning trade, group flagship Adani Enterprises Ltd (AEL), the holding company of the Group, rallied sharply after rating agencies reposed confidence in Adani’s capability of repaying debt and Adani group made coupon payments on outstanding dollar bonds.

The Sensex shot up by 1.52 per cent, or 910 points, to 60,841.88 and the NSE Nifty Index rose 244 points at 17,854.05.

A note by Fitch Ratings issued Friday said there is no immediate impact on the ratings of the Fitch-rated Adani entities and their securities, and that it expected no material changes to its forecast cash flow.

Another agency Moody’s said its ratings for Adani Ports and Special Economic Zone, Adani Green Energy and Adani Transmission are underpinned by their regulated infrastructure businesses with long-term sales contracts, or their strong operating cash flows and dominant market position.

What also seems to have helped change the sentiment is the news that Adani’s port business made payments on dollar bonds as scheduled Thursday.

Later in the day, though, S&P Global Ratings revised the outlook on Adani Ports and SEZ, and Adani Electricity to negative from stable, while affirming the rating. “There is a risk that investor concerns about the group’s governance and disclosures are larger than we have currently factored into our ratings, or that new investigations and negative market sentiment may lead to increased cost of capital and reduce funding access for rated entities,” S&P said in a statement.

The AEL stock, which was under tremendous pressure in the last nine days, had a roller-coaster ride rallying 55.75 per cent from its day’s low of Rs 1017.10 to close with a gain of 1.25 per cent at Rs 1584.20.  Courbevoie, France-based TotalEnergies SE, one of the largest foreign investors in Adani, said it had carried out due diligence “consistent with best practices” when investing $3.1 billion in the Adani group. However, Adani Power, Adani Total, Adani Wilmar and NDTV fell by another 5 per cent each, Adani Transmission and Adani Green by 10 per cent each.

The company added that it “welcomes the announcement by Adani to mandate one of the ‘big four’ accounting firms to carry out a general audit”.

Meanwhile, the State Bank of India, the country’s largest lender, said Friday that the total outstanding exposure of the state-owned bank to the Adani Group currently stands at 0.9 per cent, or Rs 27,000 crore, of the total loan book. As of December 31, 2022, the bank’s gross advances stood at Rs 31.33 lakh crore.

“As far as the quantum (of loans to the Adani Group) is concerned, that is about 0.8-0.9 per cent of our total loan book. Our total loan book size is Rs 31 lakh crore (as on end-December 2022), so it (outstanding exposure to the Adani Group) should be Rs 26,000-27,000 crore,” SBI’s Chairman Dinesh Khara told reporters. He, however, said that the bank has lent to the Group only for those projects that are having “tangible assets and adequate cash generation”.

“Given the significant and rapid decline in the market equity values of the Adani Group companies following the recent release of a short-seller report highlighting governance concerns, our immediate focus is primarily on assessing the rated entities’ overall financial flexibility, including their liquidity position and access to funding to support refinancing and ongoing growth initiatives,” Moody’s said. Nevertheless, these adverse developments are likely to reduce the group’s ability to raise capital to fund committed capex or refinance maturing debt over the next 1-2 years. “We recognise that a portion of the capex is deferrable, and the rated entities do not have significant maturing debt until FY2025,” Moody’s said.

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