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Related Issuers
Rating Action:

Moody's revises outlook on Adani Transmission to stable; affirms Baa3 rating

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 to each rating of a subsequently issued bond or note of the same series or category/class of debt 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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​
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