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Related Issuers
Rating Action:

Moody's assigns Baa3 to Adani Transmission Limited's proposed USD bond

08 Nov 2019

Singapore, November 08, 2019 -- Moody's Investors Service has assigned a Baa3 rating to the proposed USD500 million senior secured bond to be issued by Adani Transmission Limited (ATL, Baa3 stable).

The outlook on the rating is stable.

Servicing of the proposed bonds will be supported by an obligor group that includes ATL and two of its wholly-owned subsidiaries, Maharashtra Eastern Grid Power Transmission Company Limited and Adani Transmission (India) Limited.

ATL will use the bond's proceeds to refinance its existing INR debt and Masala bond. The bond will fully amortize over 16 years.

ATL, based in Ahmedabad, is the largest private-sector participant in India's power transmission and distribution market.

RATINGS RATIONALE

The Baa3 rating considers (1) ATL's predictable cash flow, underpinned by the stable and mature regulatory framework for India's power transmission and distribution industry, (2) the company's solid operating track record, (3) its sizable asset portfolio, which in turn supports its capacity to partially fund capital expenditure with retained cash flow from operations, (4) its exposure to execution risk and funding requirements, given ATL's ambitious growth plans, and (5) its high financial leverage.

The rating also recognizes the commitment of ATL's management and its promoter to maintain an investment-grade rating profile, as evidenced by the promoter's capital infusion in April to strengthen the company's liquidity.

"Following the company's success in securing several new transmission projects through competitive tenders over the past 2-3 months, we expect ATL's annual capital spending will exceed our previous projection of INR25-30 billion over the next 18-24 months," says Spencer Ng, a Moody's Vice President and Senior Analyst.

The additional funding requirement will pressure the company's financial metrics. Specifically, Moody's expects the company's consolidated funds from operations (FFO) to net debt for the fiscal year ending March 2020 to remain close to the minimum tolerance level of 7% for its Baa3 bond ratings, after factoring in the additional debt that it will incur to help fund its capital expenditure.

Beyond the current fiscal year, ATL's ability to meet its capital funding requirements and maintain its credit metrics above the minimum tolerance level, will depend on whether its management and promoter can introduce timely countermeasures -- such as its planned equity raising - as required.

Moreover, ATL's actual capital spending requirements will depend on (1) the scheduling of the remaining spending needed to complete projects already in development, (2) its success in winning new greenfield bids and (3) the amount of capital expenditure the regulator will allow for its integrated utility business in Mumbai for the next 5-year control period starting April 2020.

A material increase in higher risk investments outside ATL's core transmission and distribution business could also introduce negative rating pressure.

Moody's has also considered the following environmental, social and governance (ESG) factors.

As a transmission and distribution network operator, ATL is exposed to some degree of bushfire risk given that its network covers forests. If this environmental risk materializes, Moody's expects ATL would have some capacity to recover the cost of replacing damaged equipment through the regulatory framework and insurance coverage. However, sufficiency of these allowances is untested. According to ATL, its transmission assets have not been affected by bushfires over the last decade.

Moody's is unlikely to upgrade the Baa3 senior secured bond rating prior to the company's planned equity raising, given its high financial leverage and growth pipeline. Over time, the rating could be upgraded if consolidated FFO/net debt improves to above 16% on a sustained basis with no material change in the group's focus on electricity transmission and distribution.

On the other hand, Moody's could downgrade the bond rating if ATL's FFO interest coverage falls below 1.75x and/or FFO/net debt falls below 7% on a sustained basis. The rating could also come under pressure if there is a deterioration in ATL's business risk profile, which could result from a material rise in the group's exposure to higher-risk businesses outside its core regulated portfolio.

The principal methodology used in this rating was Regulated Electric and Gas Networks published in March 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Adani Transmission Limited, based in Ahmedabad, is the largest private-sector participant in India's power transmission chain. The rated ATL bonds are issued by an obligor group that includes Adani Transmission Limited (ATL) and two other fully owned subsidiaries, Maharashtra Eastern Grid Power Transmission Company Limited and Adani Transmission (India) Limited, which operates four transmission lines across the country with a network of more than 5,000 circuit kilometers. Outside of the obligor group, ATL owns and operates another 11 transmission assets and an integrated utility business in Mumbai.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Spencer Ng
Vice President - Senior Analyst
Project & Infrastructure Finance
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Terry Fanous
MD-Public Proj & Infstr Fin
Project & Infrastructure Finance
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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