NEW DELHI, Dec 6: US investment bank JP Morgan has assigned an ‘overweight’ rating to four Adani group bonds, citing their capacity to scale and foster growth through internal cash flows, thereby minimizing potential credit stress.
In a comprehensive report, JP Morgan assigned an ‘overweight’ rating to three bond issues from Adani Ports & SEZ and one from Adani Electricity Mumbai Ltd (a subsidiary of Adani Energy Solutions Ltd). The bank has adopted a neutral stance on five other Adani bonds and is underweight on a bond issued by Adani Green Energy Ltd.
JP Morgan offers three types of bond ratings – the ‘Overweight’ rating, which indicates a buy recommendation; a Neutral rating, suggesting a hold position; and Underweight, which signifies a sell recommendation.
In the risk assessment section, it noted that Adani bonds could perform better than expected with a swift resolution to the bribery charges against founder chairman Gautam Adani and key associates from the US SEC and the Department of Justice, successful refinancing of forthcoming bonds and credit facilities, and enhanced operational performance.
The Adani group has dismissed the allegations from US authorities as unfounded.
Following initial volatility, “the spreads of the group’s bonds (post US authorities’ actions) appear to have stabilized, showing an increase of approximately 100-200 basis points, with shorter tenors facing more significant spread widening due to elevated dollar prices,” stated JP Morgan.
The report also tabulated several imminent maturities for offshore debt across various Adani group companies, including Adani Ports, Adani Green, Adani Airport Holdings (fully owned by Adani Enterprises), Ambuja Cement bidco, and Adani Energy Solutions. It remarked, “Overall, we feel varying degrees of comfort, particularly with Adani Green, which has a substantial loan (USD 1.1 billion) maturing in March 2025.”
Although the bonds may not be secured, they are supported by robust cash flows.
“We prioritize cash flows over security,” stated Love Sharma from JP Morgan in the report.
“Even in instances of some secured bonds, a reasonable distribution is permitted under covenants, so cash cannot be entirely classified as trapped. The ability to scale and grow using internal cash flows at Adani Ports gives us strong confidence in the intrinsic equity value of such a business, mitigating the potential for credit stress,” the report concluded.
Key upside risks to its Neutral rating include “a rapid resolution of the SEC/DoJ charges, successful refinancing of upcoming bonds and credit facilities, and improved operational performance,” as stated in the report.
Conversely, key downside risks to its ‘overweight’ and ‘neutral’ ratings encompass an unfavorable outcome from the SEC/DoJ indictment and jury trial; any related-party transactions within the group and promoter entities; and debt-funded mergers & acquisitions or capital expenditure-driven growth that could lead to weakened credit metrics, it added. (PTI)
