The Credit Rating Agencies Are Asked By SEBI About The Ratings Of The Loans And Securities Of The Adani Group.

The Indian capital markets regulator SEBI has asked for information from credit rating agencies on all ratings of Adani group entities’ local loans and securities. The SEBI (Securities and Exchange Board of India) asked rating agencies last week to submit the information, which would include all the outstanding ratings, outlook, and any minor differences from any meetings with business group spokespeople.

The actions of SEBI.

SEBI is most probably attempting to gauge whether the rapid drop in stock prices of multiple Adani corporations has any impact on the borrowing companies’ liquidity positions and repayment of loan abilities. 

Since January 24, when the Wall Street short seller Hindenburg Research issued its study claiming pricing manipulation and accounting fraud by the group, none of the rating agencies in India has modified their ratings or outlook on Adani companies.

Some brief details about the plummet of Adani stocks.

Between January 25 and February 21, the stocks of ten Adani-listed corporations fell by 21.7% to 77.47%, with Adani Total Gas dropping the highest, followed by Adani Green Energy and Adani Transmission. After the Hindenburg study, TotalEnergies SE, a French energy behemoth, ceased a multibillion-dollar proposal to create green hydrogen with Adani Group, a blow to the gas business. Another source of worry is Adani Total Gas’s debt.

According to an exchange filing, the business faces collective maturing debt commitments in the fourth quarter of its 2023 and 2024 fiscal years that exceed its cash balance. Yet, it has a cash flow coming from assets of Rs 9.32 billion.

Material events that led to the loss of Adani securities.

The rapid collapse in share price is one point in the context of material events that rating agencies often weigh in to assess a borrower’s rating and outlook, or place it under ‘rating watch’. Material events also comprise a massive unanticipated loss, a regulatory constraint or fee, and major damage caused by an earthquake or flood. Regulations mandate that any rating action generated by such an event should be uncovered within a week of its happening.

The move by different rating agencies on Adani equities.

Immediately after the Hindenburg report came to light, many credit rating agencies asked many state-owned banks if they would refinance the business group’s foreign-currency loans over the next year. More credit help from domestic banks would be an important point that rating agencies would monitor. In the future, the proportion of foreign currency debt to rupee debt may fall, “said a source in the business.

Bank loans account for the major portion of household debt. Only foreign ratings agencies like Moody’s and S&P have revised the ‘outlook’ on several Adani firms from stable to negative, owing to the fast decrease in the company’s market value. Local governments, on the other hand, are waiting and watching since they believe the group’s liquidity will exceed total maturing loans in 2023-24. Furthermore, the rating agencies expect the group may reconsider some of its capital expenditures.

Adani group’s significant expenditure, specifically in various regions, exposes Adani group to inherent project execution risk. Yet, firm management has expressed their willingness to slow the pace of conducting capex, considering that a significant percentage of such capex is discretionary. A major increase in external debt/PBILDT owing to high debt-funded capex shall be an essential rating monitorable for the Adani group of firms going forward, stated rating agency CARE Ratings in a credit update note on Adani entities this month.

The MC A10 index, which measures Adani Group equities, depleted substantially down recently as bears continued to assault the stocks. Adani Enterprises, Adani Green Energy, Adani Total Gas, and Adani Transmission dragged the index down by around 5.36 percent to 35.37. They each plummeted 5-7 percent. The index tracks the price movement of all ten Adani group equities in real-time. Each firm in A10 is weighted in proportion to its overall market capitalization.

According to a press statement issued recently, index provider FTSE Russell is also keeping an eye on the information on Adani Group equities and will move with scheduled index review revisions for the securities. Investors are keeping an eye on two things: the group’s high debt ratios and its ability to generate cash flow after losing $2.5 billion in new money from its canceled share offering.

The last call on the fear over Adani securities.

Fears over Adani Group’s access to offshore finance linger, even as the equity-market shock from Hindenburg’s charges of stock manipulation and accounting fraud begins to fade. Billionaire Gautam Adani and his companies have made moves to decrease leverage ratios, including repaying loans, but debt and cashflow levels continue to alarm investors.

Edited by Prakriti Arora