Fitch Ratings has removed Adani Energy Solutions Ltd (AESL) from its ‘Ratings Watch Negative’ list, marking the first upgrade by an international ratings agency since the US indictment involving the Adani Group. The agency affirmed AESL’s long-term foreign and local-currency issuer default ratings (IDRs) at ‘BBB-‘.
“The ratings have been removed from Rating Watch Negative and assigned a Negative Outlook,” Fitch stated.
The agency affirmed the ratings following Adani Group’s demonstrated adequate funding access since the US indictment of certain board members of Adani Green Energy Limited (AGEL) on November 20, 2024.
“We believe the risks associated with the group’s liquidity and funding requirements have moderated,” Fitch noted.
Fitch stated it would continue to monitor the investigations for any evidence of governance weaknesses and the impact on AESL’s financial flexibility. Since the indictment of group chairman Gautam Adani and two other key executives in an alleged bribery scheme to secure renewable energy contracts, the conglomerate has shown resilience without compromising its credit profile or business performance.
The agency acknowledged that the indictment for alleged securities and wire fraud poses a corporate governance risk for AESL. A conviction or indications of weak governance practices could pressure the ratings.
Fitch highlighted that AESL has demonstrated adequate funding access since the indictment, securing Rs 5,100 crore from onshore and offshore banking facilities.
AGEL also raised onshore funding to refinance its USD 1.1 billion construction-linked facility, due in March 2025. Nevertheless, Fitch cautioned that increased reliance on onshore funding could heighten refinancing risks over the medium term.
AESL’s credit profile benefits from India’s stable and favourable regulatory environment. Fitch expects revenue from electricity transmission assets to continue contributing the majority of EBITDA in the medium term, alongside growing contributions from the smart metering business.
“We believe Tariff-based Competitive Bidding (TBCB) projects provide less protection than the cost-plus model and are exposed to variations in cost of debt, but minimal operating costs reduce margin risk for TBCB assets,” Fitch stated.
It forecasted capital expenditure to rise significantly to Rs 17,500 crore annually in FY25 and FY26, up from Rs 4,000 crore in FY24. This increase is driven by transmission projects under construction and the expansion of the smart metering business.
AESL recently secured a bid to install 22.8 million smart meters across five Indian states under a design, build, finance, own, operate, and transfer structure.
Fitch expects the EBITDA contribution from this business segment to exceed 25% by FY26, up from nil in FY24 and an estimated 15% in FY25, citing a fast cash conversion cycle. Cash generation will commence once 5% of the contracted meter capacity or 25,000 meters, whichever is earlier, has been installed.
The agency noted that AESL’s cash flow is exposed to India’s weaker state-owned power distribution entities. However, direct debit facilities for consumer bill payments to distribution utilities are expected to aid in the recovery of dues.
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