S&P Global upgrades Adani Ports and SEZ outlook to ‘Positive’ from ‘Stable’

The positive outlook over the next 18-24 months indicates that APSEZ’s strong competitive position and diversification will support healthy cash flows.

“APSEZ’s larger and more diversified portfolio of assets than peers’ underpins its earnings quality,” the report said. “This is due to the company’s well-situated origin and destination ports, high utilization rates of about 67 per cent compared with peers, and increasing provision of end-to-end logistics solutions to customers. A good mix of higher-margin container volumes will also support robust EBITDA margins of 58 per cent-60 per cent,” it added.

The APSEZ has expanded significantly over the past decade through organic growth and a series of acquisitions, it said, adding that a “key watchpoint” will be the concession renewal of Gujarat-based Mundra port, which is set to expire in 2031.

“We could revise the outlook to stable if concession renewal risk for the Mundra port is greater than we expect, such that APSEZ’s earnings quality is likely to be adversely affected,” S&P Global added.

More clarity in relation to renewal discussions for Pipavav port–also awarded by the Gujarat Maritime Board–would also be an important indicator and precedent for the Mundra concession, given that the private port’s concession is due in 2028, it said.

The ratings could be raised, the agency said, if conditions such as concession renewal risk of Mundra port are manageable; current financial position, with a net debt-to-EBITDA ratio materially below 3.5x on a sustainable basis, is maintained; clears sovereign default stress test, among other factors.

Revealing its inhibitions, the agency said that APSEZ’s growth strategies are being considered in the negative assessment of the company’s financial policy.

“The Adani family’s connection with the controversial Carmichael coal project in Australia (notwithstanding APSEZ’s divestment of Bowen Rail Operations Pte Ltd. in March 2021) and APSEZ’s investment in junta-controlled Myanmar (albeit small at around US$290 million, which APSEZ has written off) pose reputational risks that could push up the cost of funding and diminish investor appetite,” it said.