Sebi seeks details on ratings of Adani companies’ loans and securities

The rating companies were told last week by the Securities and Exchange Board of India (Sebi) to share the information, which would include all outstanding ratings, outlook, and possible updates from any discussions with officials of the business group.

“Sebi is probably trying to ascertain whether the sharp fall in stock prices of several Adani companies would have any bearing on the liquidity positions and the debt repayment capability of the borrowing companies… Most of this information, however, is in public domain,” a person aware of the communication from the regulator told ET.

None of the rating companies in India have changed the ratings or outlook of Adani companies since January 24 when the Wall Street short seller Hindenburg Research released its report alleging price manipulation and accounting fraud by the group.

Between January 25 and February 21, the stocks of 10 Adani listed companies have dropped between 21.7% and 77.47% – with Adani Total Gas falling the most, followed by Adani Green Energy and Adani Transmission.

A sudden fall in share price is among the ‘material events’ that rating agencies typically factor in to review a borrower’s rating and outlook, or put it under ‘rating watch’. A large unexpected loss, regulatory stricture or fine, and extensive damage caused by an earthquake or flood are also covered under material events. According to regulations, any rating action, triggered by such an event, has to be communicated within a week of the occurrence of such an event.

Not a ‘Material Event’
“Since it’s close to a month since the Hindenburg report, it possibly cannot be a material event for any rating action. Under the circumstances, rating companies would keep track of other parameters, like a further fall in share price, or other developments for any action,” said a banker.

Bank loans constitute most of the domestic debt. Till now, only international credit agencies like S&P and Moody’s have changed the ‘outlook’ on some of the Adani companies from ‘stable’ to ‘negative’, primarily due to rapid decline in the market value of the companies concerned. Local agencies, however, are in a wait-and-watch mode on the back of their estimate that the group’s liquidity is more than total maturing debts in 2023-24. Besides, the agencies believe that the group may review some of its capital expenditure.

“…substantial capex being undertaken by Adani group, especially in diverse areas, exposes Adani group to inherent project execution risk. Nevertheless, the company management has conveyed their flexibility to moderate the pace of undertaking capex, given (that a) substantial portion of such capex is discretionary in nature. Going forward, significant increase in the external debt/PBILDT due to large debt-funded capex shall be critical rating monitorable for Adani group of companies,” said CARE Ratings in a February 2 credit update note on Adani entities. PBILDT stands for profit before interest, lease rentals, depreciation and taxation.

Shortly after the Hindenburg report, some of the credit rating agencies had asked large state-owned banks whether they would refinance the business group’s foreign-currency debts over the next one year. “Further credit support from domestic banks would be a key factor that rating agencies would track. Going forward there may be a dip in the share of foreign currency debt to rupee debt,” said an industry source.