Adani Ports proposed bonds: Moody's assigns 'Baa3' rating, Fitch and S&P gives 'BBB-'

Moody's Investors Services has assigned a rating of 'Baa3' on APSEZ's proposed USD senior unsecured bonds. While both Fitch Ratings and S&P Global Ratings have assigned a 'BBB-' rating each on the same bonds.

Jul 22, 2021 10:07 IST India Infoline News Service

Adani Ports and Special Economic Zone Limited (APSEZ) is in focus on Thursday after major rating agencies assign ratings to the company's proposed foreign currency denominated bonds issuance.

Moody's Investors Services has assigned a rating of 'Baa3' on APSEZ's proposed USD senior unsecured bonds. While both Fitch Ratings and S&P Global Ratings have assigned a 'BBB-' rating each on the same bonds. However, Fitch and Moody's have given a negative outlook, while S&P assigns a stable outlook on the bonds.

At around 10.33 AM, APSEZ was trading at Rs669.30 per piece down by 0.5% on Sensex. The stock has touched an intraday high and low of Rs679.55 per piece and Rs668.05 per piece respectively earlier today.

Notably, APSEZ plans to use the bond proceeds to partially fund its capital expenditure requirements and for general corporate purposes. Also, the proposed bonds will rank pari passu with the company's existing US dollar bonds.

Here's what the above-mentioned rating agencies have highlighted about ASPEZ's proposed bonds:


According to the rating agency, APSEZ's Baa3 issuer rating primarily reflects the company's strong market position as the largest port developer and operator in India by cargo volume. The rating also takes into consideration the long-term growth potential of India's economy as a whole, a key driver behind the large increase in the volume of traded goods over the past few years.

"As the proposed USD bonds rank pari passu to all of APSEZ's existing and future unsecured and unsubordinated debt, the Baa3 rating of these bonds follows that of its existing senior unsecured bonds issued in 2017, 2019, 2020 and 2021," says Abhishek Tyagi, a Moody's Vice President and Senior Credit Officer.

Moody's expects that APSEZ's credit profile will withstand the impact of the coronavirus pandemic given its moderate financial profile and robust liquidity heading into the fiscal year ending March 2022 (fiscal 2022), as well as its ability to postpone capital spending.

Further, Moody's expects that APSEZ's performance over the next two to three years will be driven by the ramp-up of capacity relating to its recently acquired and commissioned ports and terminals and its growing share of containers, with the addition of new terminals to its portfolio. Meanwhile, Moody's expects APSEZ's overall volumes to increase by 20%-25% in fiscal 2022, which will be helped by the recent acquisitions of the Dighi and Gangavaram ports.

The negative rating outlook over the next 12 to 18 months reflects the negative outlook on India's sovereign rating and the fact that virtually all of the company's business operations are based in India (Baa3 negative).


In its rating rationale, Fitch said that APSEZ's underlying credit profile reflects its status as the largest commercial port operator in India, with best-in-class operational efficiency. The issuer has experienced throughput resilience in economic cycles, including the current Covid-19-related downturn. Cargo throughput for APSEZ rose by nearly 2% (11% if including its Krishnapatnam Port Company Limited (KPCL) acquisition) in the financial year ended March 2021 (FY21), compared with the nearly 5% decrease for cargo throughput at all Indian ports.

In terms of the financial performance of Adani Ports, Fitch said that its base case assumes a 22.5% increase in throughput in FY22, which is 2.5 percentage points lower than management's projection of a 25% increase in throughput in FY22. The increase in throughput in FY22 is due mainly to the addition of newly acquired KPCL and Gangavaram Port Ltd. (GPL). Adding Fitch said, "We assume throughput will rise by 6.7% a year thereafter, in line with the CAGR of Indian GDP in the past five years. It implies a throughput CAGR of about 7% between FY21 and FY26."

Further, Fitch said,  "for tariffs, we assumed 2.5% growth rate, the lower end of management guidance of 2.5% to 3% realisation growth. We assume constant CAPEX of INR40 billion a year in FY22 to FY26. We also assume dividend payouts will be 25% of profit after tax in FY22 and beyond. Our base case generates an average adjusted net debt/EBITDAR of 3.0x with a maximum of 3.6x."

Fitch's rating case assumes a 10% haircut on the base case throughput for FY22-FY26. It implies a throughput CAGR of about 5% between FY22 and FY26.

Fitch added, "We also applied a 10% haircut to Fitch base-case tariff growth and applied 10% stress to our base-case capex assumption. We assume dividend payouts are the same as in the base case, in line with management's guidance. Our rating case generates an average adjusted net debt/EBITDAR of 3.5x with a maximum of 3.9x."


S&P in its rating rationale said, "We expect APSEZ to maintain its credit profile in line with the issuer credit rating. The company's financial ratios are likely to improve, driven by organic growth as well as the completion of its announced acquisitions, including that of Krishnapatnam Port Co. Ltd., Sarguja Rail Corp., and Gangavaram Port. These acquisitions were funded using cash or equity. We expect APSEZ's ratio of funds from operations (FFO) to debt to remain above 15% in fiscal 2022."

APSEZ's earnings are supported by the port's strategic location, long-term contracted revenue, tariff flexibility, and good operating efficiency. During fiscal 2021, the company handled cargo of 142 million metric tons (up 7.4%) and container traffic of 7.2 million twenty-foot equivalent unit (TEU) (up 15.9%). This was against an overall decline of 5% for all Indian ports. APSEZ was also able to maintain its operations through India's COVID-19 lockdowns.

In S&P's view, APSEZ's leverage will improve and the FFO-to-debt ratio would exceed 20% from fiscal 2023.

S&P further said, "We expect management to protect the company's investment-grade credit profile by adjusting its capital expenditure, inorganic growth appetite, or dividend distributions such that the FFO-to-debt ratio is more than 15% on a sustainable basis. We further expect APSEZ to refrain from any significant related party transactions outside the normal course of business."

The stable outlook on APSEZ reflects our expectation that the company's capital structure can accommodate any headwinds, given management's ability to adjust growth aspirations, shareholder distribution, and investments.

"We estimate APSEZ's ratio of adjusted net debt to EBITDA will be below 4.0x over fiscals 2022 and 2023, compared with 4.2x in fiscal 2021," S&P said. 

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