Adani’s stock rout can impact its ability to raise capital or refinance debt, says Moody’s

• The rapid decline in the market capitalization of the Adani Group companies is likely to have an adverse impact on the group’s ability to raise capital or refinance its debt, according to Moody’s.
• However, the rating agency noted that a part of Adani Group’s capital expenditure can be deferred, freeing up liquidity to a certain extent.
• Analysts at Fitch Ratings maintained that there is no immediate impact on the credit ratings of Adani Group.

The rapid decline in the market capitalization of the Adani Group companies is likely to have an adverse impact on the group’s ability to raise capital or refinance its debt in the next two years, according to ratings agency Moody’s. The research firm joins the ranks of other rating agencies ICRA and Fitch to comment on sharp decline in the Adani Group’s stocks.

"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 on Friday.

The combined market capitalisation of the Adani Group companies has declined by ₹11.12 lakh crore since January 24 when the Hindenburg report was published. This has sparked concerns about the group’s ability to repay loans and the exposure of Indian banks as well as the state-run insurer Life Insurance Corporation of India’s investment in Adani Group companies.

According to Fitch Ratings, there is no immediate impact on Adani Group’s credit ratings – it noted that the earliest bond maturity is in June 2024, which is more than a year away.

"There are also no near-term significant offshore bond maturities - earliest in June 2024 for Adani Ports & SEZ (BBB-/Stable); December 2024 for Adani Green Restricted Group 1 (RG1, BB+/Stable); and 2026 or beyond for all other entities – reducing refinancing risks and near-term liquidity risks," Fitch Ratings said.

Earlier this week, Gautam Adani called off the Adani Enterprises FPO despite it being fully subscribed, saying that continuing would not have been “morally correct”.

“For me, the interest of my investors is paramount and everything is secondary. Hence to insulate the investors from potential losses we have withdrawn the FPO,” Adani said.
Portion of Adani Group’s capital expenditure is deferrable say rating agencies
What should also offer comfort for Adani Group’s investors is that a portion of its capital expenditure is deferrable, according to Moody’s and ICRA.

“We recognise that a portion of the capex is deferrable, and the rated entities do not have significant maturing debt until FY2025," Moody's added.

This should ease the liquidity position of the Adani Group to a certain extent even if raising capital becomes difficult due to the Hindenburg fallout.

"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," ICRA said on Monday.
Bonds hit distressed levels
Bonds of the Adani Group companies have been impacted over the past few days.

According to a Bloomberg report, Adani Group companies’ bonds have hit distressed levels, falling to 70 cents on the dollar. The yields have also shot up drastically to more than 30% in secondary markets, while junk bonds’ yield stood at 8.14%.

Earlier on Tuesday, Citigroup’s wealth arm reportedly halted margin loans on bonds of Adani Group companies, after Credit Suisse reportedly stopped accepting Adani Group companies’ bonds as collateral for margin loans.

Rating agencies say that they are actively monitoring the developments involving the Adani Group. The group is also under scrutiny from the market regulator Securities and Exchange Board of India, and the Reserve Bank of India, according to a Reuters report.

On Friday, S&P Dow Jones said it will remove Adani Enterprises from sustainability indices with effect from February 7.

(With agency inputs)

SEE ALSO:

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