ICRA has revised the outlook for two Adani Group companies – Adani Ports and Special Economic Zone and Adani Total Gas – to ‘negative’, on account of the deterioration in the group’s financial flexibility, which followed a sharp decline in share prices.

The revision from its earlier rating of ‘stable’ follows the report published by a US-based short seller Hindenberg Research, and follows an increase in the yield of global bonds raised by group entities.

On Adani Ports, the credit rating agency said that the group’s strong financial flexibility and the track record of refinancing a large part of its debt with borrowings (mostly from overseas debt capital markets) of longer tenures at lower interest rates were the key credit strengths, which have been adversely impacted.

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However, Adani Ports’ liquidity profile remains robust and a large repayment of international bonds of $650 million is due only in FY25.

Icra will be monitoring the group’s ability to raise funds from domestic and global markets as equity and debt at competitive rates. Further, Icra sees an increased risk of regulatory and legal scrutiny on the group entities and its impact on the credit quality of Adani Ports will be monitored.

The rating reaffirmation continues to factor in Adani Ports’ strong business profile, marked by its favourable operating characteristics, geographically spread-out footprint, diversified cargo mix and long-term customer tie-ups.

Adani Ports has been acquiring key port and strategic assets across the logistics volume chain in the last few years. This has strengthened its business profile by improving the asset and cargo diversification, expanding presence across key hinterlands in the domestic market and integrating the port assets with other logistics segments.

The company accounted for about 24% of the overall cargo handled at the Indian ports in FY22, with about 43% share in the container segment and about 35% share in coal.

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Its share of coal has moderated in the overall cargo mix in the last few years and is expected to moderate further, going forward. The increased asset and cargo diversification mitigates the risks associated with demand cyclicality in specific cargo segments, structural risks arising from the expected moderation in coal imports in the medium to long term and any asset specific and event risk at specific locations.

On Adani Total Gas, the rating agency said it had staggered some of the capex plans over the next two years considering progress achieved in projects awarded in ninth and tenth rounds. Further, the company has funding tie-ups to meet the capex requirements in the near term, it has large capex requirements over the longer term which need significant debt funding.

Hence, the Adani Group’s reduced financial flexibility can impact ATGL’s ability to raise funds from the domestic and international markets and result in higher cost of capital. The rating agency said it sees an increased risk of regulatory and legal scrutiny on the Adani Group entities and its impact on the credit quality of Adani Total Gas will be monitored.

TotalEnergies being a co-promoter in Adani Total Gas mitigates the risk to some extent. However, any review of investment in Adani Total Gas by Total, in the backdrop of current developments leading to any weakening of linkage remains a sensitivity factor and the developments will be monitored, it added.