Leverage moderating across Adani firms: BofA

The Adani group, which operates across multiple infrastructure sectors, with 12 listed entities in India and a combined market capitalisation of about $200 billion, remains “anchored by strong assets and robust cash flows”, according to a Bank of America (BofA) report.

BofA said the holding companies of Adani’s US dollar bond issuers “have reported better fundamentals over the last two years underpinned by Ebitda (earnings before interest, taxes, depreciation, and amortisation) growth on capacity expansion along with moderation in leverage”.

The group, which has earmarked $100 billion of investments by 2039, is planning to list several of its verticals, starting with the airport company, in the next few years.

The report projects that Ad­a­ni Ports and Special Economic Zone Ltd will see further im­p­ro­vement in its credit profile “supported by its diversified ports, sticky volumes, and efficient operations”.

BofA estimates the company’s leverage to remain around 2.5 times despite “hefty investme­n­ts”.

Similarly, Adani Transmis­s­ion and Adani Electricity Mu­mbai are expected to maintain “steady credit profiles supported by their diversified op­erations and regulated and/or long-term fixed-price contr­acts”, with leverage staying un­der six times and coverage ab­ove two times in the next three years.

The Adani group faced “global scrutiny and investigations by domestic regulators after a 2023 short-seller report alleging governance lapses and regulatory breaches”, BofA said.

Despite the US government scrutiny, “the group continued to showcase robust funding access at competitive pricing supported by its robust asset base and strong financial profile”, it noted.

According to BofA, Indian regulators “concluded most inspections without adverse findings”.

While rating agencies assigned negative outlooks citing governance risks, “the absence of rating downgrades over the last three years validates the group’s sound operations and structural protections, and reflects strong market access”, the report said.

It, however, cautioned that “an unfavourable outcome from ongoing investigations remains a key risk factor”.

BofA analysts maintained a “constructive stance” on Adani’s dollar bonds, citing operational resilience and continued liability management.

“Operational resilience and continued liability management underpin our constructive stance on the complex despite year-to-date tightening,” the report said.

The bank is "Overweight" on APSEZ 2031s and 2032s, ADINCO 2031s, Adani Transmission 2036s, and ADANEM 2030s, supported by “strong credit fundamentals and attractive relative valuation”, and “Marketweight” on several other bonds.

The report said the group’s 13 outstanding US dollar bonds — totalling $5.7 billion — have shown “high volatility” since the short-seller report of January 2023.

Yet “the group continued to showcase funding access at reasonable cost”.

Following the US indictment, the bonds widened by 88-292 basis points (bps) but later tightened by 80-325 bps, with most now trading near or below pre-indictment levels.

“Management’s buyback of APSEZ, Adani Transmission, and Adani Electricity Mumbai bonds through tender offers and repurchases actively since the US indictment has also supported the tightening,” it said.

Even after the rebound, “the Adani complex is still offering value when compared with India, Thailand, Malaysia, Indonesia, China IG indices, and the US BBB index”.

The report highlighted improvement in leverage metrics: APSEZ’s net-debt-to-Ebitda ratio declined from 3.8× to 2.4× between 2022-23 (FY23) and FY25; ADTIN’s from 5.5× to 5.0×; ADANEM’s from 4.7× to 3.8×; and ADINCO’s from 2.5× to 1.8× over the same period.

“An unfavourable development from the US or domestic investigations will have limited effect on operations of the USD bond issuers, in our view,” BofA said.

It expects APSEZ, ADTIN, and Adani Green Energy Ltd to “continue to support access to funding for both expansion and refinancing as seen over the last two years”.

“We are not ‘Underweight’ on any bond as we expect fundamentals to continue to improve or remain stable for all three ultimate issuers — APSEZ, ADTIN and AGEL — and technicals remain supportive as well,” the report concluded.