Why did S&P reduce the two Adani Group Firms to a “negative” rating?
Both Adani Ports and Special Economic Zone and Adani Electricity saw their projections cut from stable to negative by S&P on Friday, while Moody’s stressed that the recent dip in the value of Adani Group’s stock could make it more challenging for the Indian megacorp to raise cash.
Earlier this week, U.S. short-seller Hindenburg Research voiced concerns over the Adani Group’s high debt levels and claims that tax havens were used illegally. According to the multinational corporation, the short-claim seller’s stock manipulation is “without basis” and based on a lack of understanding of Indian law.
The seven publicly traded firms that make up the Adani Group have seen their combined market value drop by more than $100 billion (or roughly 50%) as a result of the news included in the Hindenburg report. Since the Adani Group as a whole is experiencing management problems and financial challenges, S&P has allocated a gloomy view to both Adani Ports and Adani Electricity.
It was also suspected that the Adani Group’s capacity to raise capital through the issuance of new equity or the securing of new loans could be impaired by the short seller’s costs. Although Moody’s has still not assessed the creditworthiness of Adani Ports and Special Economic Zone, Adani Green Energy, or Adani Transmission, it has issued a warning that the sell-off could reduce available funding sources.
The companies did, nevertheless, seem to have some leeway for budgetary manoeuvre, according to Moody’s, who also remarked that “these unfavourable events are projected to make it tougher for the group to lend funds to pay for planned capital spending or refinancing debts that are approaching payable in the following one to two years.”
The rating agency went on to say, “We recognise that a component of the capex is deferrable, and the rated companies do not have significant maturing debt until FY2025.” The cash flow projection for Adani Group, on the other hand, was not expected to undergo any material changes, according to Fitch Ratings.
Adani Transmission Ltd (ADAI.NS), Adani Electricity Mumbai Ltd (AEM.LTD), and Adani International Container Terminal (AICT) are just a few of the eight Adani companies and affiliates that have received ratings from Fitch. Specifically, this would be done so that the rating agency could identify “unfavourable regulation situations,” “ESG-related concerns,” and “any substantial changes to the rated firms’ accessibility to funding or financing costs on a lengthy perspective.”
Stocks in the Adani group continue to fall.
Adani Group’s market capitalization fell by Rs 31,534 crore on Monday as heavy selling pressure on the company’s stocks persisted. With this latest drop, the total loss in market capitalization after the Hindenburg report was announced on Jan 24 is now $10,88 lakh crore.
As of Monday, five of the nine-member companies in the group had reached their minimum operating levels. Adani Enterprises‘ stock opened the day down over 6% but closed only 0.98% lower. Though four of the nine companies in the Adani group saw gains last Friday, selling pressure returned on Monday.
Gains from the last year lost in a matter of days
According to research by Business Insider India, all of the Adani group’s 2022 gains have been lost after January 24. During this period, Gautam Adani saw a $60 billion decline in his net worth, dropping him from third to 21st place on the Bloomberg Billionaires Index.
With the sharp decline in Adani shares on the bourses, Finance Minister Nirmala Sitharaman started to reassure investors, saying that financial institutions are “not overexposed” to the company. The market has occasionally had slight or substantial changes, but these issues are always fixed. In addition, Sitharaman stated in an interview that she thought our regulators were focused on the situation.
The SEBI, a market regulator, has also interceded, saying it has taken steps to reduce stock market volatility. This entails a supplementary monitoring system (ASM). The SEBI stated on Saturday that “this practice is instantly activated under some circumstances of stock price fluctuations.
Three corporations belonging to the Adani group—Adani Enterprises, Adani Ports & SEZ, and Ambuja Cements—have been temporarily assigned to the Adani Group Special Purpose Vehicle (ASM) of the stock exchanges BSE and NSE. The 100% initial margin condition for intraday trading is meant to discourage speculative trading and short-selling of these stocks.
Reportedly, Adani Enterprises has abandoned its proposal to allocate bonds totalling Rs. 1,000 crores. According to reports, Adani Enterprises has cancelled a planned Rs. 1,000 crore bonds issue after cancelling its Rs. 20,000 crore follow-on public offer. In addition, the Adani group’s multiple projects have come under scrutiny due to the fallout from the Hindenburg disaster.
Indications in the press suggested the group’s 23,000 crore Dharavi Redevelopment project, 16,700 crore Navi Mumbai International Airport project, and 15,000 crore Navi Mumbai electricity distribution licence are all being investigated.
Moody warns that a drop in stock prices potentially hamper Adani’s ability to raise funds.
Moody’s Investors Service has voiced concern that the steep drop in Adani Group’s market capitalization may hinder the company’s ability to raise capital or refinance debt. After the Adani group’s market stock values tumbled”considerably and swiftly” after the publication of a short-seller report outlining governance problems, Moody’s stated on Friday that it is “primarily focusing on exploring the rated companies’ company’s financial stability, especially their liquid assets and access to finance to support restructuring and continued expansion ambitions.”
However, the company’s credit rating will not alter immediately, according to Fitch Ratings. Because the S&P agency has assigned low ratings to two of the corporations that are part of the Adani Group—namely, Adani ports and Adani enterprises—these businesses are expected to have a large consequence due to the ratings.
Adani Group’s stock price has been falling since the Hindenburg research firm made allegations of fraud and malpractice against the company. Even though S&P has reduced the two Adani Group Firms to a “negative” rating, Adani Group is going to suffer a lot, not only from such allegations but definitely from the group he had built merely on debts.
Edited by Prakriti Arora
