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The outlooks on some Adani group companies were downgraded to negative by S&P Global Ratings on Friday evening, even as two other rating companies maintained their credit risk assessments during the day, easing the sell-off in group companies after a seven-day rout that saw the group’s market value nearly halve.

While S&P Global Ratings revised the rating outlook of Adani Electricity and Adani Ports to negative from stable, Moody’s said that the adverse developments are likely to reduce the group’s ability to raise capital to fund committed capex or refinance maturing debt over the next 1-2 years, and Fitch Ratings said there is no immediate impact on the ratings of the rated Adani entities and their securities following the short-seller report alleging malpractices and expects no material changes to its forecast cash flow.

S&P said in a statement that there is a risk that investor concerns about the group’s governance and disclosures are larger than what it has currently factored into ratings or that new investigations and negative market sentiment may lead to increased cost of capital and reduce funding access for these two companies. It affirmed the issuer and issue ratings on the entities as their business fundamentals remain intact, short-term liquidity is adequate, and debt maturities in the next 12 months are manageable.

The negative outlook reflects the risk of a deterioration in the credit profile of Adani Ports and Adani Electricity Mumbai
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The negative outlook reflects the risk of a deterioration in the credit profile of Adani Ports and Adani Electricity Mumbai

“The negative outlook reflects the risk of a deterioration in the credit profile of Adani Ports and Adani Electricity Mumbai due to governance risks and funding challenges for the larger Adani Group," S&P said.

Meanwhile, the easing of selling pressure on Adani group stocks helped the broader markets recover on Friday and end with more than 1% gains.

After plunging a staggering 35% in morning trading, Adani Enterprises ended in the green after rating agencies showed confidence in Adani’s capability of repaying debt, said Deepak Jasani, head of retail research at HDFC Securities. Analysts also linked the rebound in Adani stocks to the French energy major Total’s positive comments on the group.

The investor sentiments remained impacted in the morning by news flow regarding Adani Enterprises’ shares being removed from Dow Jones Sustainability indices. The Adani Enterprises shares slipped to lows of 1,017.45 before rebounding to end the day at 1,531.

Adani Ports, the other Adani group stock that is part of the Nifty index, rose 5.61%. Besides, two more group cement stocks, ACC Ltd and Ambuja Cements, rose 4-5.56%, supporting the markets.

However, the selling pressure on other Adani group firms continued, with trading in most of them halted as they hit the circuit breakers. Overall, the group’s total market cap eroded by an additional 34,000 crore, taking the total market cap loss to around 9.10 trillion since the Hindenburg report raised allegations against the Adani group.

The sharp rebound in Adani Enterprises came after the comments from rating agency Fitch and leading PSU banks such as State Bank of India and Bank of Baroda calmed nerves and was visible in the active futures’ contract open positions declining by 23%, exchange data showed. Open positions here refer to outstanding short positions.

This meant speculators on this counter were squeezed, resulting in them covering their bearish bets at higher levels, which caused the stock to rise from a 35% intraday low. Adani Enterprises reported a trading volume of 5,946 crore, almost a tenth of the overall exchange volume of 63,056.34 crore. This was followed by Adani Ports with a volume of 4,013 crore. Together, these stocks accounted for 16% of overall exchange volumes.

Adani Ports also saw shorts being squeezed with a price range of a whopping 21% intraday.

In a separate move, NSE halved the price band of Adani Total Gas to 5% from 10%, with the stock shedding 58% since last week.

The broader market also found support from favourable global cues and major events such as rate hikes by the US Fed, Bank of England and European Central Bank over. The Sensex rose 1.52%, and the Nifty gained 1.38%.

Vinod Nair, head of research at Geojit Financial Services, said that markets are rising, assuming that we are in the last phase of the rate hike cycle as indicated by the Fed statement. In addition, Adani Group stocks revived post the confident statement by Total Energies, a large French energy company, raising the sentiment of the market.

Analysts are of the view that volatility may prevail in Adani group stocks.

Foreign portfolio investors remained net sellers in the markets. Having already net sold 27,407 crore worth of equities year to date till 2 February; they were net sellers of 932.44 crore worth of equities on Friday.

India’s relative overvaluation is the fundamental reason for its underperformance to other emerging markets, triggered mainly by the sustained selling by FPIs, and the ‘Adani stocks crisis’ has further contributed to the negative sentiments, said analysts.

Joseph Thomas, head of research at Emkay Wealth Management, said the markets would look forward to the RBI policy due next week for indications on likely moderation in the stance and also with respect to the policy in relation to liquidity management. While some amount of swings on either side is expected in the coming weeks, the markets would ultimately settle at levels dictated by the fundamentals, said Thomas.

Ujjval Jauhari
Ujjval Jauhari is a deputy editor at Mint, with over a decade of experience in newspapers and digital news platforms. He is skilled in storytelling, reporting, analysing and writing about stocks, investment ideas, markets, corporates and more. He is based in New Delhi.
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