Expect no significant investment in Carmichael Coal Mine
S&P Global Ratings expects Adani Ports and Special Economic Zone Ltd’s (APSEZ) capital structure can accommodate headwinds, given the management’s ability to adjust growth aspirations, shareholder distribution, and investments.
“We estimate APSEZ’s ratio of adjusted net debt to EBITDA to be below 4.0x over 2022 and 2023,” it said.
APSEZ has confirmed that it will not make any significant investments in any part of the Carmichael Coal Mine project in Queensland. It is also divesting the Bowen Rail Co Pty Ltd before this entity undertakes works for the coal mine.
Says S&P Global Ratings, “We do not expect the company to have any significant related-party transactions beyond the normal course of business.”
The rating agency made the observation on assigning ‘BBB-‘ long-term issue rating to APSEZ’s proposed US$500 million senior unsecured notes. The issue rating is subject to review of the final issuance documentation.
APSEZ (BBB-/Stable/–) intends to use the proceeds from the issuance to refinance its US$500million bond maturing in January 2022. The proposed bond will not increase indebtedness as the company plans to repay the January 2022 bond before March 31, 2021.
“In our view, APSEZ’s leverage will increase temporarily, with a ratio of funds from operations (FFO) to debt reaching 10.6% in fiscal 2021 (year ending March 31, 2021). This will be driven by lower trade volumes at APSEZ amid the COVID-19 pandemic and completion of the acquisition of Krishnapatnam Port Co Ltd (KPCL),” said S&P Global.
Cargo volumes at APSEZ declined 27% year on year to 41.5 metric tons (mt) for the first quarter of 2021 due to lockdown measures to contain the COVID-19 pandemic. But as the Indian economy reopened, the port registered a quarter-on-quarter growth of 35% to 56 mt for the second quarter of 2021 and growth of 25% to 70 mt for the third quarter of 2021 (excluding KPCL). All other India ports registered an average 18% growth.
“We expect fiscal 2021 cargo volume to be 225 mt – 230mt for APSEZ (excluding KPCL),” it said.
“We believe APSEZ’s leverage will improve, with an FFO-to-debt ratio of 15.1% and 17.9% for fiscals 2022 and 2023, respectively. We expect management to protect the company’s investment-grade credit profile by adjusting its capital expenditure, inorganic growth appetite, or dividend distributions to maintain an FFO-to-debt ratio of more than 15% on a sustainable basis.”
APSEZ’s earnings are supported by the port’s strategic location, long-term contracted revenue, tariff flexibility, and good operating efficiency. Nevertheless, these strengths are offset by the company’s asset concentration on Mundra port and a less-protected market position relative to peers in Asia-Pacific. #banking #bonds #financial #ports #investment #expansion /fiinews.com
