Following the bribery charges and indictment of certain board members of Adani Green Energy Ltd (AGEL) by the US Securities and Exchange Commission (SEC) and department of justice (DoJ), Fitch Ratings has put on rating watch negative (RWN) Adani group's entities rated under its infrastructure and project finance rating. Adani group companies put on RWN by Fitch include Adani Ports and Special Economic Zone Ltd (APSEZ), North Queensland Export Terminal Pty Ltd (NQXT), Mumbai International Airport Limited (MIAL) and Adani International Container Terminal Pvt Ltd (AICTPL). Fitch Ratings also placed Adani Energy Solutions Ltd's (AESL) long-term foreign- and local-currency issuer default ratings (IDR) of 'BBB-' and the 'BBB-' ratings on Adani Electricity Mumbai Ltd's (AEML) senior secured notes on RWN.
Fitch says, "The RWN on APSEZ, NQXT and MIAL reflects increased corporate governance risk and potential contagion risk that could impact funding access and liquidity of the rated entities if corporate governance risk materialises following the US indictment."
The rating agency says the misrepresentation and bribery charges have heightened corporate governance risk for the rated entities of the Adani group. "A conviction or any indication of weaknesses in the entities' governance practices and internal controls that may come to light as part of the process could put pressure on the ratings."
On 20 November 2024, three AGEL board members were indicted by US authorities for alleged bribery and providing false and misleading statements to investors in a 2021 offshore note offering. Adani group has denied these allegations.
"While the US indictment mainly involves AGEL's key leadership, the proceedings and the outcome could reflect significantly weaker corporate governance practices of the group and can lead to further negative rating actions. Two of the indicted board members belong to the founding shareholders of the Adani group, which effectively owns a majority of shares in all rated group entities (except AICTPL). These directors also serve on the boards of most other rated entities, raising contagion risk and renewing governance concerns across the group," the rating agency says.
Fitch says it expects the near-term liquidity of the rated entities to be sufficient, as there are no significant scheduled debt maturities in the next 12-18 months (except NQXT) and the entities have some capex flexibility. "We believe the charges may hinder NQXT's planned refinancing, including raising funding costs, curbing interest from private lenders and extending due diligence requirements. However, we expect limited refinancing risk given the ultimate shareholder's (Adani Family Trust) past support, underpinned by strong economic incentives, NQXT's positive free cash flow (FCF) and the moderate size of the funding requirement."
APSEZ's cash balance of Rs89bn (billion) in September 2024 and its FCF should cover its current debt maturities of Rs113bn to the financial year ending March 2026 (FY25-26), with the next major US dollar bond due in July 2027, the rating agency says.
Fitch says it believes the latest developments could hinder the group's funding access, which can significantly affect the growth plans for certain rated entities like APSEZ, though it has some flexibility in its capex plans. "Increased reliance on onshore funding, following reduced offshore funding, could heighten refinancing risk over the medium term, and a material rise in funding costs could reduce operating cash flows."
