ICRA Revises Adani Total Gas' Outlook To Negative On Deterioration In Group's S Financial Flexibility; Reaffirms Rating

Hence, ICRA believes that Adani Group’s reduced financial flexibility can impact ATGL’s ability to raise funds from the domestic and international markets and result in a higher cost of capital.

Adani Group's financial flexibility came under pressure after the Hindenburg report in late January -- which sparked a sharp decline in share prices and an increase in the yield of international bonds raised by the conglomerate's entities.

In its rationale, ICRA takes note that while ATGL has staggered some of the CAPEX plans over the next two years considering the progress achieved in projects awarded in the ninth and tenth rounds.

Also, ICRA sees an increased risk of regulatory/legal scrutiny on the Adani Group entities and its impact on the credit quality of ATGL will be monitored.

Although, ICRA agrees that the presence of TotalEnergies SE as a co-promoter in ATGL, mitigates the risk to some extent. But ICRA also notes that any review of investment in ATGL by Total, in the backdrop of current developments leading to any weakening of linkage which remains a sensitivity factor and the developments will be monitored.

Moody's Investors Service who is the largest shareholder in ICRA has assigned A1(Stable)/P-1 rating on TotalEnergies.

On its rating action, ICRA factors in ATGL’s healthy financial risk profile, characterised by adequate return and debt protection metrics because of the robust cash generation from its ongoing business.

It added, the company continued to witness a healthy growth in volumes in the current fiscal, backed by increased demand from legacy GAs1 as well as revenue addition from the new GAs. The higher volumes and elevated gas prices have resulted in healthy revenue growth. While the contribution margin had moderated in FY2022, there has been some recovery in the current fiscal and the operating profits continued to grow due to the improved volumes.

The re-affirmation in ATGL's rating also draws comfort from the parentage, with equal holding (37.4%) by TotalEnergies SE through Total Holdings SAS and the Adani family.

ICRA expects ATGL to have significant operational synergies with Total over the long term. As Total is among the leading liquefied natural gas (LNG) players in the world, ATGL can benefit from a favourable long-term LNG sourcing tie-up for its operations. Any change in Total’s linkages with ATGL will be a key monitorable.

However, ICRA's ratings were constrained by the execution and funding risks associated with the large ongoing capex planned over the next seven to eight years for the operationalisation of the CGD network in the 29 newly awarded geographical areas (GA) to ATGL.

The rating agency takes note that the minimum work programme (MWP) associated with each of the GAs and the achievement of the same will be critical to avoid any penalties.

Also, ICRA's ratings consider the large, planned equity commitment by ATGL towards its joint venture Indian Oil Adani Gas Private Limited’s (IOAGPL) newly awarded 10 GAs and the corporate guarantees extended to IOAGPL for issuing the performance bank guarantee (PBG) to the regulator for its CGD operations.

ICRA said, it will be monitoring the Adani Group’s ability to raise funds from the domestic/global market as equity/debt at competitive rates.

On BSE, ATGL share price closed at 5% upper circuit of ₹781.85 apiece.