NEW DELHI: Despite facing two significant setbacks within the past two years, JP Morgan has assigned an ‘overweight’ rating to four bonds issued by the Adani group.
This optimistic assessment stems from the group’s ability to scale and grow using robust internal cash flows, which JP Morgan views as reducing the potential for credit stress.
The ratings include three bonds from Adani Ports & SEZ (APSEZ) and one from Adani Electricity Mumbai Ltd, a subsidiary of Adani Energy Solutions Ltd. JP Morgan remained neutral on five other Adani bonds and underweight on one issued by Adani Green Energy Ltd.
The investment bank’s rating categories include overweight (buy), neutral (hold), and underweight (sell).
Factors and risks highlighted
The report suggests Adani bonds could outperform expectations if the US SEC and Department of Justice (DoJ) investigations are resolved quickly or the group successfully refinances its upcoming bond maturities and credit facilities and if its operating performance improves significantly.
Conversely, downside risks to these ratings include adverse outcomes from the SEC/DoJ charges involving Gautam Adani and senior executives; weak credit metrics driven by debt-funded acquisitions or capital expenditure and any related-party transactions that raise investor concerns.
Recent bond performance
Since the SEC and DoJ actions, spreads on Adani bonds have widened by 100-200 basis points, with short-tenor bonds seeing greater volatility. Despite this, JP Morgan cited the solid cash flow generation of entities like Adani Ports as a reassuring factor, stating, “Our preference is for cash flows over security.”
Key maturities include a $1.1 billion loan for Adani Green Energy due in March 2025. JP Morgan highlighted its focus on cash flow-backed operations to reduce credit risks, emphasizing the intrinsic equity value of businesses like Adani Ports. \
The Adani group had dismissed the allegations made by US authorities as baseless.
