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14 Jun 2019
Singapore, June 14, 2019 -- Moody's Investors Service has today revised the outlook on Adani
Transmission Limited's (ATL) rating to stable from negative.
At the same time, Moody's has affirmed ATL's Baa3 senior
secured bond ratings.
ATL, based in Ahmedabad, is the largest private-sector
participant in India's power transmission market.
RATINGS RATIONALE
"The change in ATL's outlook to stable reflects the expected
improvement in the company's financial position over the next 12-18
months, underpinned by incremental earnings contributions from the
Mumbai integrated utility business acquired last year and recently completed
greenfield projects," says Spencer Ng, a Moody's
Vice President and senior analyst.
"The change in outlook also considers the partial equity credit
ascribed to subordinated loans from its promoter, after factoring
in recent changes made to the terms of these instruments,"
adds Ng.
Over the next 12-18 months, Moody's expects the company's
consolidated funds from operations (FFO) to net debt to improve to the
mid-7% range, which is above -- but would remain
close to -- the minimum tolerance level of 7% set for the
bonds' Baa3 ratings, after factoring in additional debt to
be incurred to help fund capital expenditure.
The affirmation of the Baa3 senior secured bond ratings considers (1)
ATL's predictable cash flow profile that is underpinned by the stable
and mature regulatory framework for the power transmission and distribution
industry in India, (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 operating
cash flow, and (4) its exposure to execution risk and funding requirements,
given ATL's ambitious growth plans.
The company's medium-term credit profile will likely be driven
by its growth strategy and funding plans. In particular,
a material increase in higher risk investments outside of ATL's
core transmission and distribution business, or a shift from its
commitment to fund at least 30% of future capital expenditure through
retained cash flow or committed equity infusion, could exert negative
pressure on its rating.
ATL expects annual capital expenditure to increase to INR25-30
billion over the next two years, which would create a material funding
requirement for the company. At the same time, ATL's
actual capital spending requirement will depend on (1) the regulatory
determination for the Mumbai utility business in April 2020, and
(2) the company's success in winning new greenfield bids to add
to the four transmission line projects already underway.
ATL's financial position could improve further if it completes its
planned equity raising in the second half of 2019, and applies part
of the proceeds to repay some of the outstanding loans from its promoter.
The additional buffer in its leverage position that would result from
these repayments would provide ATL with greater flexibility to pursue
its growth initiatives.
"The ratings also recognize 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 profile," adds Ng.
As a transmission and distribution network operator, ATL is exposed
to some degree of bushfire risk given that its network spans forest areas.
If this 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, although the sufficiency
of these covers to replace damaged assets and pay potential compensation
to third parties is untested. According to ATL, its transmission
assets have not been affected by bushfires in the last decade.
The Baa3 senior secured bond ratings are unlikely to be upgraded prior
to the company's planned equity raising, given its high financial
leverage and ambitious growth plans. 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 business focus
on electricity transmission and distribution.
On the other hand, the bond ratings could be downgraded if FFO interest
coverage falls below 1.75x and/or FFO/net debt falls below 7%
on a sustained basis. The ratings 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 of its core regulated portfolio.
The principal methodology used in these ratings 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 or category/class of debt,
this announcement provides certain regulatory disclosures in relation
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or category/class of debt or pursuant to a program for which the ratings
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credit ratings from the support provider's credit rating.
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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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