Fitch Places Adani Group’s Bond Ratings on Negative Watch
Credit rating agency Fitch Ratings has recently put several foreign currency bond ratings of entities within the Adani Group on a ‘negative watch’. This decision was made following an indictment initiated by the US Securities and Exchange Commission and the Department of Justice against Gautam Adani, the group chairman, and board members of Adani Green Energy Ltd.
Rating Affecties include Adani Ports, North Queensland Export Terminal, and Mumbai International Airport
The affected foreign currency bond ratings include the Long-Term US dollar senior unsecured bonds of Adani Ports and Special Economic Zone Ltd (APSEZ), the Australian dollar senior secured bonds of North Queensland Export Terminal Pty Ltd (NQXT), and the US dollar senior secured bonds of Mumbai International Airport Ltd (MIAL).
Fitch Highlights Heightened Corporate Governance Risks
Fitch explained that the ‘Rating Watch Negative (RWN)’ reflects an increase in corporate governance risks potentially faced by these entities and the possible contagion effects on their funding access and liquidity. The US indictment raised concerns about the effectiveness of corporate governance practices within the Adani Group.
The rating agency also noted that while the indictment primarily involves the leadership of Adani Green Energy Ltd (AGEL), a subsidiary of the Adani Group, the outcomes could reveal broader corporate governance weaknesses throughout the entire organization.
Implications for Adani Group and its Entities
Two of the indicted board members are founding shareholders of the Adani Group and play significant roles on the boards of other rated entities. This overlap poses a potential risk of contagion and raises further concerns about governance within the group as a whole.
Outlook Revised to Negative for Certain Adani Group Entities
Fitch has revised the outlook for the ratings of Adani International Container Terminal Private Ltd (AICTPL), Adani Green Energy Ltd Restricted Group 1 (AGEL RG1), Adani Green Energy Ltd Restricted Group 2 (AGEL RG2), and Adani Energy Solutions Ltd Restricted Group (AESL RG) US dollar senior secured bonds from ‘Stable’ to ‘Negative’.
Fitch clarified that it affirmed the ratings for these entities based on the ring-fencing structure of their restricted groups, stable operating cash flows, and the nearly fully amortising debt they possess, which helps minimize potential contagion impacts. However, the change in outlook reflects the risks of higher funding costs and potential deficiencies in governance and internal controls.
Potential Impacts on Liquidity and Funding
Fitch acknowledges that, currently, the rated entities within the Adani Group have adequate near-term liquidity. However, the medium-term funding outlook could be adversely affected by the recent developments. The group may face challenges in securing offshore funding and will likely need to rely more on onshore sources. This could result in higher funding costs, reducing operating cash flows and increasing refinancing risks.
Additionally, Fitch warns that such developments could significantly impact the growth plans of entities like APSEZ. Nonetheless, the company maintains some flexibility in its capital expenditure plans to navigate these challenges.
The Indictment and Bribery Allegations
According to the indictment, between 2020 and 2024, Gautam Adani and other executives allegedly agreed to pay over $250 million in bribes to Indian government officials to secure lucrative solar energy supply contracts.
Overall, Fitch’s placement of Adani Group’s bond ratings on a negative watch and their revised outlook for select entities highlight the potential effects of the US indictment on corporate governance, funding access, and liquidity within the group. The repercussions extend beyond Adani Green Energy Ltd and may signal weaknesses across the organization.
