Fitch affirms Adani Electricity Mumbai’s USD notes at ‘BBB-’

The rating agency also affirmed AEML’s $2 billion global medium-term note (GMTN) programme at ‘BBB-’, along with notes issued under the programme.

“The affirmation reflects the view that the Hindenburg report alleging governance issues at the Adani group has a limited near-term impact on AEML’s cost of funding and access thereof, at the current rating level,” it said.

The rating agency said that high cash-flow visibility from regulated assets, regulator-approved capex and an adequate liquidity position with no major debt maturity till February 2030 further support AMEL’s financial flexibility.

“We expect AMEL’s credit metrics to have adequate headroom based on our conservative rating-case assumptions,” it added.

The rating agency flagged issues of management and corporate governance. “Governance weaknesses at the sponsor level and other group entities, including a highly concentrated shareholding structure across group entities and aggressive debt-funded investments at some entities, can expose all Adani group-related firms to higher contagion risks than previously estimated. This could affect their financial flexibility,” Fitch said.

“We believe these group-related risks to be lower for AEML than for Adani Transmission Limited (ATL, BBB-/Stable), which owns 74.9% of AEML, due to AEML’s legal ring-fencing as per a strict cash flow waterfall mechanism in its long-dated US dollar notes, and the presence of Qatar Investment Authority as a significant minority shareholder,“ it added.

AEML’s 2030 notes and notes issued under the GMTN programme represent joint and several obligations of AEML and Power Distribution Service Limited (PDSL), together referred to as the obligor group. PDSL is a subsidiary of ATL that collects AEML’s corporate expense allocations and keeps the receipts within the obligor group for the benefit of the US dollar note-holders.

“We believe contagion risk from governance-related risks at the Adani Group are lower for AEML. The group is also re-evaluating to slow its investment plans, especially in non-infrastructure businesses”, Fitch said.

The family recently sold $1.9 billion in shares across various group entities, including 2.55% in ATL to a US-based fund. It understands that the shareholder’s family is in the process of raising additional funding, which is expected to support financial flexibility across Adani group entities, mitigating the risks.