Some of Adani Group's debt funded capex projects are discretionary, can be deferred: ICRA

Chennai, Credit rating agency ICRA Ltd on Wednesday said the large debt funded capex programme of Adani Group remain a challenge, and some of them are discretionary in nature.

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 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 shares ownership by few overseas investments firms and share price movement of 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.

On January 29, Adani Group released their detailed response to the observations made by Hindenburg, refuting the allegations and stating that most of the observations relate to matters that have been duly disclosed by the Adani portfolio companies in the past.

"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 Adani group, especially the financial flexibility of the group with key monitorables 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.

While the ICRA-rated Adani group entities do not have any immediate refinancing requirement, it is expected for some of the entities from FY2025 onwards, 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 case of Adani Transmission Ltd (ATL), favorable 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.