Indian banks and global investors are considering caps for their exposure to the Adani Group amidst the conglomerate’s aggressive growth push, which is riding on acquisitions, S&P Global Ratings said on Thursday.
Even as the Group tries to grow in new business segments, there may not be any immediate impact on the ratings of group entities, Abhishek Dangra, senior director, infrastructure ratings, S&P Global, said during a webinar. “That being said, the domestic banking system as well as some international capital bond market investors do look at Adani Group entities as a group and many of them – because the Group has been raising a lot of funds for its growth – are looking at certain kinds of group limits or limiting their exposure to one group, which can become a challenge at a time the group continues to keep growing aggressively,” Dangra added.
S&P rates a number of Adani Group entities in the utilities space, the renewables space and in project finance. The Group is growing in multiple business segments, some of which are unrated, Dangra said. For instance, it has entered segments like cement, data warehousing, and airports, which has scaled up significantly in the last few years.
For rated entities, such as Adani Ports, the business fundamentals remain fairly solid, according to Dangra. “The port business, as such, is still generating healthy cash flows. Where probably the risk can lie for the Group is some of the acquisitions it is doing,” he observed.
In the past few years, many of the acquisitions were funded through equity and were operational projects, which therefore protected the financial metrics. “But, some of the recent acquisitions that we are seeing are largely debt-funded and that is taking away the headroom. So any future acquisitions, if the Group continues at the same pace, that can start putting pressure on the ratings,” Dangra said, adding that for now, the risk can be managed if the Group manages its growth ambitions and funding well.
In the utilities space, Adani Group entities benefit from strong regulatory frameworks, tight cash flow structures and governance for the rated entities. On the renewables side, the Group’s businesses have a pure-play project finance structure with very tight waterfall covenants, which ensure that the performance of those assets will drive credit ratings rather than concerns about the larger group, Dangra said.
Earlier this week, another rating firm CreditSights said it remains cautiously watchful of the Adani Groupʼs growing expansion appetite, which is largely debt-funded. The firm cited the Group’s solid banking relationships with both domestic and international banks as a key positive for the Group, as they have been willing to lend it large amounts for both its existing businesses and new ventures.
Courtesy- https://www.financialexpress.com/industry/banking-finance/banks-global-investors-may-cap-exposure-to-adani-firms-sp/2644513/risk