After U.S.-based ratings agency Fitch put a few Adani group bonds on ratings watch amid $265 million bribery indictment case in a U.S. court, shares of three Adani companies, Adani Energy Solutions Ltd, Adani Green Energy Ltd and Adani Ports and Special Economic Zone Ltd, are trading in red.
Adani Energy Solutions shares are trading 3.66% lower at ₹601.95 on the BSE, while Adani Green Energy shares are down 5.78%. Shares of port major Adani Ports and Special Economic Zone are also trading in 'negative' at ₹1,145.15, down 1.83%.
Fitch Ratings has placed Adani Energy Solutions' (AESL) long-term foreign-and-local-currency issuer default ratings of 'BBB-' and the 'BBB-' ratings on Adani Electricity Mumbai Ltd's (AEML) senior secured notes on rating watch negative (RWN).
"The 'BBB-' ratings on the notes issued by AESL's subsidiary, Adani Transmission Step-One Limited, have also been placed on RWN. The rating actions follow the bribery charges and indictment of certain board members of Adani Green Energy Ltd (AGEL) by the U.S. Securities and Exchange Commission and Department of Justice," Fitch said.
The ratings agency said the latest ratings reflect "increased corporate governance risk and potential contagion risk that could affect the funding access and liquidity of the Fitch-rated corporate entities related to the Adani group, following the U.S. indictment".
On November 20, 2024, three AGEL board members were indicted by U.S. authorities for alleged bribery and providing false and misleading statements to investors in a 2021 offshore note offering. The group has denied these allegations. The U.S. SEC has charged Gautam Adani and Sagar Adani, executives of Adani Green Energy Ltd., and Cyril Cabanes, an executive of Azure Power Global Ltd., in the case.
Fitch says while the U.S. indictment mainly involves AGEL's key leadership, the proceedings and the outcome "could reflect significantly weaker corporate governance practices of the group" and lead to negative rating actions.
Two of the indicted board members belong to the founding shareholders of the Adani group, and one of them is a trustee and beneficiary in the S.B. Adani Family Trust, which effectively owns a majority of shares in both AESL and AEML, Fitch says. "These directors also serve on the boards of most other Adani-related entities rated by Fitch, raising contagion risk and renewing governance concerns across the group."
"We will monitor the investigations for any impact on the financial flexibility of the rated entities, particularly any material deterioration in near- to medium-term funding access, including their ability to roll over existing credit lines or access new facilities, as well as potentially higher credit spreads."
Key Rating Drivers:
Near-Term Liquidity Risk Limited: Fitch expects the near-term liquidity of AESL and AEML to be sufficient, as there are no significant scheduled debt maturities in the next 12-18 months. They also have some flexibility in capex plans. "For AESL, its cash balance in end-September 2024 exceeds current debt maturities and its near-term capex can be funded via a $1 billion (around $83 billion) qualified institutions placement in August 2024. AESL's earliest significant debt maturity is $500 million due in August 2026."
It says AEML's liquidity is supported by the bullet maturity of its US dollar notes, which account for more than 90% of all of its debt, with the earliest maturity in 2030. The company's cash balance exceeds its minimal debt maturities over the next 12 months and its operating cash flows are sufficient to cover most of its capex requirements.
Risks to Medium-Term Funding Access: Fitch says the latest developments could hamper the group's funding access, which can significantly affect AESL's growth plans, though there is some flexibility in its capex plans. Increased reliance on onshore funding could heighten refinancing risk over the medium term, and a material rise in borrowing costs could reduce operating cash flow generation."
Heightened Corporate Governance Risks: Fitch assesses that the bribery allegations have heightened corporate governance risk for these entities. "A conviction or any indication of weaknesses in these entities' governance practices and internal controls that may come to light as part of the process could put pressure on the ratings."
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