Fitch Ratings has assigned Adani Ports and Special Economic Zone’s proposed senior unsecured US dollar notes an expected rating of ‘BBB-(EXP)’. The agency expects the proceeds to be primarily used for refinancing the company’s outstanding debt and capital expenditure. “The notes are rated at the same level as APSEZ’s senior unsecured debt rating as they will constitute direct, unsubordinated and unsecured obligations of APSEZ. The final rating is contingent on the receipt of final documents conforming to information already received,” Fitch Ratings said in a statement.
The rating of ‘BBB’ denotes capacity for repayment as adequate, but adverse conditions are more likely to affect the same. The agency said it continues to see APSEZ as being well- positioned to benefit from India’s growth and related cargo opportunities. The company has significantly better flexibility in infrastructure renewal and expansion capex than some other rated peers in the region, which gives it the ability to generate strong free cash flows. “The main risk to the rating is the management’s commitment to contain outflows in terms of capex, M&A and advances,” the statement said.
The management recovered all of the Rs 35 billion of related-party loans, advances and deposits outstanding in 2016-17, it said, adding that the terms of the proposed US dollar notes also limit any related-party transactions to the company’s normal course of business. “The stable outlook on the rating reflects the management’s commitment to contain outflows. Failure to maintain investment discipline may lead to negative rating action,” it cautioned.
APSEZ owns and operates 10 ports across the Indian coast line. Its largest port, Mundra, accounted for around 58 per cent of revenue and 62 per cent of cash operating profits in 2016-17 and is the largest port in India by cargo volumes handled. Fitch expects consolidated cargo volumes to increase at a CAGR of 14 per cent over FY17-20. “This will follow growth of 11 per cent in 2016-17, up from 5 per cent in 2015-16, when growth was reined in by the 8 per cent decline in coal volumes,” it said.