Icra puts NCDs, bank facilities of Adani Ports & SEZ on negative ratings watch

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Published: January 15, 2020 2:30:57 AM

The transaction, which is expected to be completed in April, will result in a gross debt addition of around Rs 6,200 crore and a cash outflow of Rs 5,500 crore for APSEZ at a consolidated level, the ratings agency said.

Icra, NCD, Adani Ports & SEZ, APSEZ, KPCL acquisition, Ebitda, bank facilities

Icra said that while credit metrics would benefit from higher cash flow generation as cargo volumes increase, any further debt funded acquisitions by APSEZ may impact the company’s deleveraging plans and would be a ratings sensitivity.

Ratings agency Icra has put Rs 7,000 crore worth of non-convertible debentures (NCDs) and Rs 10,020 crore of bank facilities of Adani Ports and Special Economic Zone (APSEZ) under ratings watch “with negative implications,” following the company’s recent announcement to acquire controlling stake in Krishnapatnam Port Company (KPCL) for Rs 13,572 crore. The NCDs of APSEZ and bank facilities of APSEZ are rated “[ICRA]AA+@,” while short-term commercial papers worth Rs 6,700 crore are rated “[ICRA]A1+.”

The transaction, which is expected to be completed in April, will result in a gross debt addition of around Rs 6,200 crore and a cash outflow of Rs 5,500 crore for APSEZ at a consolidated level, the ratings agency said. “Effectively, KPCL’s acquisition, along with other acquisitions and capex done in the recent past, could result in an increase in the company’s net leverage (net debt/operating profits before depreciation, interest, tax and amortisation) in FY21 and will push back the anticipated trajectory of improvement in the leveraging levels,” Icra said in a statement.

Earlier this month, Adani Ports announced that it would acquire 75% stake in KPCL, which operates the Krishnapatnam Port in Andhra Pradesh. KPCL has registered volumes of 54.9 million tonne and registered Ebitda of Rs 1,332 crore in FY19. In December, APSEZ had also acquired cold chain logistics company, Snowman Logistics.

Icra said that while credit metrics would benefit from higher cash flow generation as cargo volumes increase, any further debt funded acquisitions by APSEZ may impact the company’s deleveraging plans and would be a ratings sensitivity. Net leveraging of APSEZ stood at 3 times in FY19 and 3.1 times in the first half of FY20, compared with 2.6 times in FY18. The company’s high leverage levels and moderate credit metrics despite healthy operating margins and cargo growth remain a credit challenge for APSEZ. “Icra maintains that any material breach of covenants related to related party transactions will be a rating sensitivity,” Icra said.

The rating agency also said that APSEZ bidding for pan-India port projects or further acquiring assets in ports and logistics businesses may impact its credit profile and would be a monitorable. “The company’s ability to scale up cargo volumes and improve the performance of the port to more optimal levels, thereby leading to improvement in leveraging levels, would be a key monitorable,” it said. Shares of APSEZ closed at Rs 389, down 0.32% on Tuesday. APSEZ currently has a market capitalisation of Rs 26,871.95 crore.

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