JP Morgan goes Overweight on Adani Group’s four international bonds. Adani Group bonds saw short-term volatility after the U.S. SEC indicted the chairman Gautam Adani for bribing Indian officials. The latest research report of the US investment banker said that since then the spread of the group’s bonds has settled, widening in a range of 100-200 basis points while short-tenor bonds seeing more spread widening on the back of strong dollar prices. 

However, the report doesn’t seem to be helping the stock prices in India. Adani Enterprises closed the trade 0.70% lower at Rs 2,504.90 while Adani Ports end the session 1.5% lower at Rs 1,257.80. Adani Green Energy closed the counter 1.6% lower at Rs 1,209.50. Shares of Adani Power slipped 0.4% to Rs 535.

On average, the spread of Adani Ports and SEZ bonds widened by 140bps, Adani Transmission by 180bps, Adani Electricity Mumbai by 140bps, and Adani Green RG bonds by 150-160bps. 

“After these moves, we prefer some short-end bonds, Adani Total Gas 2026s in particular, on which we move to Overweight. Within the Adani Ports curve, where we are Overweight, we prefer Adani Ports 32s vs. Adani Ports 41s. We, therefore, initiate with an Overweight on Adani Ports 32s and move the Adani Ports 41s to Neutral from Overweight,” read the report. 

The brokerage firm remains Neutral on Adani Electricity Mumbai and Adani Green RG bonds, where it believes headline risks are higher. 

JP Morgan believes that Adani Ports and SEZ have the ability to scale and grow using internal cash flows, which provides intrinsic equity value of the business further reducing the credit stress.

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The brokerage house said that the key upside risks to its ‘neutral’ rating are a quick resolution of the SEC/DoJ charges, successful refinancing of the upcoming bonds and credit facilities, and improved operating performance.

According to the report, most of the listed entities of the group have less than 5 times leverage and show no signs of stress. Except for Adani Green who would also have better metrics when considering run-rate EBITDA for partly operationalized and under-construction projects (for which the incurred value of debt is recognized on the balance sheet). 

Leaving out the ADSEZ bonds, other Adani group bonds are secured in nature and have various covenants, including cash flow waterfall mechanism, distributions linked to graded DSCRs, and other debt-sizing covenants, which do offer protection from cash leakage out of project companies.