S&P: Governance, funding info will drive Adani rating

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MUMBAI: Should any inquiry turn out substantial malfeasance, Standard & Poor’s (S&P) has stated that it may take “negative rating action” against Adani Group entities. This could involve misreporting, monetary leakage, or material related-party loans that were previously hidden.

The rating agency’s declaration is in a FAQ-style commentary titled “Adani Group: The Known Unknowns,” which was released on Wednesday. “Like a large portion of the market, we are awaiting additional Adani Group information before determining the course of our ratings. According to credit analyst Abhishek Dangra of S&P Global Ratings, “We expect that additional information on governance and financial issues over the next 12 to 24 months would be the ratings’ driving force.

“Downside risks could emerge not just from limited access to capital, but also from our broader perspective on the soundness of the group’s governance,” S&P stated in a statement.

Early in February, S&P changed the rating outlook for Adani Power and Adani Ports & Special Economic Zone from stable to negative. S&P stated that this was a reflection of the group’s overall governance issues and finance difficulties. S&P also confirmed these firms’ “BBB-” ratings.

Given our reliance on public information for unrated listed firms, it is challenging to evaluate the group’s creditworthiness, leverage, and liquidity position. According to Richard Langberg, a credit analyst at S&P Global Ratings, “We also rely on limited public disclosures of unlisted, private firms as well as funding or obligations at the promoter level.”

The rating agency places a lot of emphasis on related-party transactions. Because of the substantial promoter control, frequent related-party transactions, lack of transparency regarding the credit position of the promoter-held entities, and aggressive growth appetite, Langberg continued, “We already assess governance as a relative weakness in our rating analysis of Adani Group entities. Except for Adani Enterprises and Adani Ports, the majority of the Adani Group companies posted positive final results on Wednesday.

S&P had stated on February 3 that there is a chance that investor concerns about the group’s governance and disclosures are greater than what was taken into account when rating the company. This statement came in the wake of claims made in the short-seller Hindenburg report, which was followed by a collapse in the price of Adani shares. It further stated that fresh inquiries and unfavourable market sentiment would raise capital costs and restrict funding options for rated firms.