Fitch Ratings raises concerns over governance weaknesses at Adani Group entities

Mumbai: Fitch Ratings has said that Adani Transmission and Adani Ports and Special Economic Zone are vulnerable to “higher contagion risks” due to governance weakness at sponsor level and other Adani group entities.

According to the Fitch report, released in Singapore late on Tuesday, if the weaknesses not addressed, they could affect the financial flexibility of the Adani group, which now faces lower governance assessment constraints that have resulted in a rating of 'BBB-'.

Fitch, however, believes that the contagion risk is lower for restricted groups. These groups benefit from structural enhancements such as a defined cash waterfall and limits on the incurrence of additional debt. Hence, their ratings would not be constrained at ‘BBB-’ if other factors driving their credit quality improve.

As of the end of December 2022, most of the senior debt at the Adani group's rated Indian entities was offshore and largely secured, with US dollar bonds that will mature only from mid-2024. Fitch Ratings predicts that the liquidity position of all rated entities or restricted groups will benefit from cash flow generation from January 2023 to March 2024, adding to cash balances at the end of December 2022.

The rating agency also addressed key questions raised by investors on the corporate governance issues, and the debt structure and liquidity position of various rated Indian Adani entities and/or their securities. This is in light of the Hindenburg Research report published on 24 January 2023, alleging various malpractices, leading to a plunge in the share and bond prices of Adani group entities, a Fitch statement said.

At 1345pm, shares of most of the Adani group firms traded higher. Adani Enterprises was up 8.06% at ₹1,730 apiece on the National Stock Exchange, while Adani Ports was at ₹631, up 6.3%. Adani Transmission was marginally higher at ₹1,016.05.