Adani Ports and Special Economic Zone (APSEZ) has been assigned ‘AAA’ credit rating by CARE Ratings, which is claimed to be India’s first to a private corporate infrastructure developer. “This is the highest possible rating given to any issuer in India by credit rating agencies, signifying APSEZ’s strongest level of credit worthiness and the ability to fulfill all its financial guidance,” the country’s largest integrated ports and logistics company says in an exchange filing.
CARE has assigned ‘AAA’ ratings with stable outlook to Adani Port’s long and short term bank facilities and its non-convertible debentures (NCDs). Besides, the agency has given ‘A1+’ rating to the port operator’s commercial paper.
As per the company, the rating is driven by APSEZ’s robust integrated business model, dominant industry position, strong growth in operations with healthy profitability, coupled with high liquidity and low leverage.
“We cherish the recognition to our financial discipline and commitment to deleveraging, diversified asset base as well as customer base and the highest profitability in this sector globally,” says Karan Adani, Managing Director, APSEZ.
The release notes that Adani Port’s strong track record of turning around port assets post-acquisition and its integrated approach as a transport utility providing services from port gate to customer gate has led to 15% compounded annual growth (CAGR) in volumes for FY19-FY24 as compared to 4% CAGR for all Indian ports. In FY24, APSEZ did a cargo volume of 419.95 million metric tonnes (MMT), 24% higher than the previous year.
Meanwhile, CARE in its report says that ratings factored in Adani Port’s market leadership position in the Indian ports sector, integrated business model with advanced transport infrastructure in rail logistics segment, as well as connectivity to dedicated freight corridor (DFC). The Adani Group company operates across nine ports and three terminals handling around 27% of seaborne cargo of India.
“The Stable outlook reflects that APSEZ will continue to generate healthy cash flows and maintain leverage threshold due to its dominant position in the domestic ports and logistics infrastructure sector having favourable demand outlook,” the rating agency mentions in its report.
The agency expects APSEZ’s cargo volumes to grow at higher than India’s economic growth rate in the medium term due to its strong business risk profile.
The rating strengths, however, can be tempered by the risk associated with any large-scale asset acquisition both in India and overseas market. “However, the management articulation to continue forming JVs with strategic partners in case of large foreign acquisitions in the future mitigates this risk to an extent,” the report notes.
As per the report, large debt-funded acquisition or deterioration in operational performance; extension of loans and advances or guarantees to related parties outside APSEZ or inter corporate deposits (ICDs) to third parties; and adverse action by regulatory agencies, may impact its rating, going forward.
On the ongoing regulatory scrutiny, CARE says that in January 2024, the Supreme Court noted that the Securities and Exchange Board of India (SEBI) completed 22 out of 24 investigations into Adani group and suggested the regulator to complete balance two pending matters over next three months. “While the investigation is not yet concluded, the impact of the outcome on the group does not appear as an issue of concern.”
The agency further says that access to fresh funding from large investors including U.S. Development Finance Corporation, significant reduction in promoter pledge, progressive buy back of international bonds, recovery in its bond yield and increase in equity share price have largely addressed the perceived challenges towards the APSEZ’s access to timely funding and refinancing risks.
