Press Release

Adani Ports and Special Economic Zone Limited April 05, 2019 Ratings Amount Rating Facilities Ratings1 (Rs. crore) Action Non-Convertible CARE AA+; Stable Debentures (Proposed) 750.00 Reaffirmed [Double A Plus; Outlook: Stable] – I CARE AA+ (SO); Stable Non-Convertible 40.00 [Double A Plus (Structured Reaffirmed Debentures Issue – II * (reduced from Rs.60.00 crore) Obligation); Outlook: Stable] * 790.00 Total (Rupees Seven Hundred and Ninety Crore Only) Details of instruments/facilities in Annexure-1 *backed by the escrow of entire receivables of Indian Oil Corporation Ltd for the single point mooring (SPM) facility of APSEZ

Detailed Rationale & Key Rating Drivers The rating assigned to the proposed non-convertible debenture (NCD) - I of Adani Ports and Special Economic Zone Limited (APSEZ) continues to factor in its strong operating efficiency and competitive position as reflected by operational port assets at diverse locations, diversified cargo mix with reduced dependence on coal cargo and increasing share of container volumes due to growth in container volume at its port after completion of its capex, growth in cargo volumes at Kattupali and Ennore, long-term contracts with customers and flexibility in determining tariff at seven ports including its landlord . The rating also factors its healthy profitability, demonstrated project execution capabilities of APSEZ in the port sector and strong financial flexibility as well as liquidity. The long-term rating of APSEZ, however, continues to remain constrained by its relatively high debt levels inherent in infrastructure development projects resulting in moderate leverage though improved gradually; as it is awaiting realization of full benefits of completed capex at some of the locations. The rating further takes cognizance of moderation in performance at its . APSEZ’s ability to rationalize its debt levels along with generating envisaged returns from the added capacities are the key rating sensitivities. Furthermore, extent of exposure to related parties and any large size debt funded capex and/or any large sized acquisition impacting its financial risk profile would also be a key rating monitorable. The rating assigned to the NCD – II of APSEZ continues to derive strength from its port service agreement (PSA) with Indian Oil Corporation Limited (IOC) rendering strong future revenue visibility concomitant with sound credit quality of the underlying receivables and established track record of operating the single point mooring (SPM) facility. The rating also draws comfort from maintenance of debt service reserve account (DSRA) in the form of fixed deposit receipts (FDR) and significant buyback of the rated NCD. The rating is, however, constrained by the nature of the structure which is not bankruptcy remote. Large deviation from the structure impacting debt coverage indicators is the key rating monitorable.

Detailed description of the key rating drivers Key Rating Strengths Strong operating efficiency and competitive position aided by geographically diversified presence of its ports APSEZ is India’s largest port operator while Mundra is India’s largest commercial port. Over the past few years, APSEZ has diversified from a single port entity having presence on Western coast to one with multi-port operations spread across both Western and Eastern coasts of India. The company has diversified geographically through development of new ports or acquisition of existing ports. The company currently has cargo handling capacity/under development port at six locations (Mundra, Dahej, Kandla, Hazira, Mormugao and Vizhinjam) located on Western coast and four (Vizag, Dhamra, Kattupalli and Ennore) locations on Eastern coast. APSEZ through its subsidiary, Abbott Point Bulkcoal Pty Limited (ABPO), also handles operations of Abbot Point Coal Terminal 1 in Australia. The contribution of Mundra to the overall cargo handled by the company has gradually reduced from 91% in FY13 to 66% in 9MFY19.

Diversified cargo mix, long-term contracts with customers and flexibility in determining tariff at seven out of ten ports APSEZ has established mechanized cargo handling facilities with capability to handle bulk, liquid, crude and container cargo. Consolidated cargo handled by the group grew from 169 million metric tonne (MMT) in FY17 to 180 MMT in FY18, a growth of 6.51% driven by healthy growth in container cargo of 20% on a y-o-y basis. Furthermore, during 9MFY19, the cargo handled by the company on consolidated basis increased by 14% on a y-o-y basis driven by healthy growth in

1Complete definitions of the ratings assigned are available at www.careratings.com and in other CARE publications.

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Press Release container cargo of 13% on a y-o-y basis. Over the past few years, the company has reduced its dependence on coal cargo with increasing growth in container cargo. The contribution of coal in the overall cargo handled by the company has declined from 47% during FY15 to 33% during 9MFY19 while that for container cargo had increased from 29% during FY15 to 41% during 9MFY19. APSEZ has entered into long-term contracts with reputed companies for key cargo segments at Mundra, Dhamra, Dahej, Hazira, and Mormugao ports/termianls. Apart from Mundra, six other ports including Dahej, Hazira, Dhamra, Kattuppalli, Vizhinjam and Ennore port of APSEZ do not fall in the purview of Tariff Authority for Major Ports (TAMP). Hence, these ports have flexibility for fixing the tariff which places them at a relatively advantageous position over other major ports. Growth in TOI and healthy profitability On a consolidated basis, APSEZ’s TOI increased by 27% during FY18 on a y-o-y basis due to growth in cargo handled by the company and increase in realisation. TOI of APSEZ further grew by 8% during 9MFY19 on a y-o-y basis driven by growth in cargo volume which led to a 20% increase in port revenue but the impact on the TOI was moderated on account of lower port development during 9MFY19 which was present in 9MFY18 on account of transfer of Container Terminals 3 and 4 (CT – 3 and CT-4) at Mundra port to its JV companies. APSEZ has healthy profitability as reflected from its consolidated PBILDT margins in the range of 65-69% over FY15-FY18. PBILDT margins continued to remain healthy during 9MFY19. Healthy operating and financial performance of Hazira and Dahej ports; partly offset by moderate performance of Dhamra Port The operational and financial performance of over the past few years has remained robust on account of notable growth in cargo volume due to addition of contracted customers for longer tenor, addition of new container lines, superior infrastructure facility and deep draft enabling berthing of large sized container vessels. The improvement in performance of can be attributed to increase in coal volumes. Further, the Dahej port, which had seen decline in cargo during FY16 and FY17, has also shown improvement during 9MFY19 primarily on account of pick up in coal imports during the period. Furthermore, the operations of Kattupalli port have also remained healthy with 18% growth in cargo handled by it during 9MFY19 on a y-o-y basis in addition to the notable growth in cargo volumes at the terminal at Mormugao on account of new long term contract signed. However, the performance of Dhamra Port was moderated mainly on account of impact of ongoing capex during FY18 and evacuation issues due to unavailability of rakes during 9MFY19. The same is also reflected from decline in PBILDT margins of Dhamra port from 67% during FY17 to 58% during FY18 and 49% during 9MFY19. As articulated by its management, the evacuation issues are being addressed through acquisition of railway rakes so as to reduce its dependence on Indian Railways. Demonstrated project execution capabilities of APSEZ in the port sector APSEZ over the years has demonstrated project execution capabilities by building new port facilities on the western and eastern coast of India. During FY18, the company had transferred container terminal – 4 (CT – 4) to its joint venture, Adani CMA Mundra Terminal Private Limited (ACMTPL). Further, APSEZ completed the construction and transferred the container terminal-3 extension (CT-3 extension) to its JV, Adani International Container Terminal Private Limited (AICTPL; rated CARE AA; Stable). APSEZ is also undertaking construction of liquefied natural gas (LNG) terminal at Dhamra port which is expected to generate healthy cash flows to the company in the medium term. Strong financial flexibility APSEZ has strong financial flexibility on account of healthy cash accruals and track record of raising low cost debt from domestic and international banks/investors. During the past two years, the company has replaced its high cost rupee borrowing with low cost foreign currency debt with longer tenure reducing the overall cost of borrowing. APSEZ has also liquidated entire loans & advances which it had extended to related parties. Liquidity Analysis The liquidity position of APSEZ is underpinned from the fact that the company had large free cash and cash equivalents balance of Rs.5221 crore as on September 30, 2018. The company generated healthy cash flow from operating activities amounting to Rs.5608 crore during FY18 which suffices the near term debt repayments as well as capex requirements and results in surplus liquidity. Free cash flow is expected to increase considerably in the medium term unless it decides to undertake some major capex/acquisition.

Key rating strengths for NCD - II Strong revenue visibility due to favourable PSA with IOC and strong credit quality of underlying receivables IOC has signed a PSA with APSEZ to handle its crude oil requirement of Panipat Refinery from March 1, 2005 to February 16, 2031. As per the PSA with IOC, APSEZ is entitled to receive annual fixed charges of Rs.35 crore up to the throughput of 8.25 million metric tonne per annum (MMTPA), for throughput of more than 8.25 MMTPA and less than 11 MMTPA, fixed charges would increase in proportion to the increase in the throughput and for throughput of 11 MMTPA and above, Rs.48.41 crore annually for the use of its SPM facility by IOC. The fixed charges are payable to APSEZ irrespective of the throughput, provided the SPM facility of APSEZ is available to IOC throughout the year. The variable charges are payable towards port dues, tug hire, pilotage charges, berth hire charges, anchorage charges, wharf-age, terminal royalty, water charges etc in proportion to the throughput handled from the SPM facility. IOC pays the fixed charges by the 15th day of the current month, whereas, the variable charges are paid by 15th day of the subsequent month. IOC is one of the flagship 2 CARE Ratings Limited

Press Release oil & gas companies of India with business interest in majority hydrocarbon value chain from refining, pipeline transportation and marketing of petroleum products. It has a strategic importance to Government of India (GoI) and plays a key role in socio-economic policies. Established track record of operating the SPM facility The SPM at Mundra port has been operating for IOC since December 2006. During FY18, the throughput handled by the company declined slightly to 7.42 MMTPA (FY17: 8.05 MMTPA). The variable revenue increased from Rs.165.27 per MT during FY17 to Rs.215.26 per MT during FY18. Nevertheless, APSEZ’s ability to handle envisaged cargo of the crude oil is crucial from the credit perspective. Significant buyback of the rated NCD and presence of DSRA The outstanding NCD stands at Rs.40 crore as on September 30, 2018 on account of significant buyback of the NCD. Buyback of NCDs has strengthened the debt coverage indicators of the rated NCD. The structure of NCD stipulates creation and maintenance of the DSRA throughout the life of the instrument by way of maintenance of a fixed deposit equivalent to one quarter installment, earmarked towards the repayments of the said NCD and allowing the investor to liquidate the fixed deposit towards the repayments. This adds to the strength of the repayment ability of APSEZ.

Key Rating Weaknesses Relatively high debt levels inherent in infrastructure companies leading to moderate leverage; albeit with some improvement Consolidated gross debt levels of APSEZ remained high at Rs.22,204 crore as on March 31, 2018 (March 31, 2017 – Rs.21,486 crore) on account of large debt funded capex and acquisitions, nascent stage of operations of some of the newly developed ports and yet to yield full benefits from terminals like Tuna, Vizag and Mormugao. This had resulted in moderate consolidated overall gearing of 1.15 times as on March 31, 2018. Total debt/PBILDT though improved continued to remain moderate at 2.75 times during FY18. APSEZ has also announced acquisition of Adani Agri Logistics Limited and its related companies from Adani Enterprises Ltd (AEL, rated CARE A; Stable/ CARE A1) for a cash consideration of Rs.945.89 crore. However, it is not expected to have material impact on APSEZ. Going forward, any large debt funded capex or acquisition impacting the leverage of APSEZ shall be key rating sensitivity.

Analytical approach: Consolidated CARE has taken a consolidated view of APSEZ and its subsidiaries for the analytical purpose. This is on account of increasing focus of management on these subsidiaries as well as their growing scale of operations and extension of advances by APSEZ to them towards rationalizing borrowing cost and facilitating their uninterrupted operations. The lists of entities whose financials have been combined are placed as Annexure-3.

For NCD – II - Consolidated view of APSEZ along with factoring structured payment mechanism backed by the escrow of entire receivables of IOC for the SPM facility of Mundra port.

Applicable Criteria Criteria on assigning Outlook to Credit Ratings CARE’s Policy on Default Recognition CARE's Rating Methodology - Port Projects CARE's Rating Methodology - Infrastructure Projects Financial ratios – Non-financial sector

About the Company APSEZ, incorporated in 1998, belongs to the with Gautam Adani family holding 62.30% stake in the company as on December 31, 2018. APSEZ operates in three segments - port development, SEZ development and logistics. In the port segment, APSEZ has developed and operates the Mundra port located on the western coast which is the largest port in India in terms of cargo handling. Apart from Mundra port, APSEZ owns and has developed ports at various other locations like Dhamra, Dahej, Hazira, Vizag, Kandla (Tuna), Kamarajar ports (erstwhile Ennore port),Vizhinjam, Kattupalli and Mormugao. Brief Financials (Consolidated; Rs. crore) FY17 (A) FY18 (A) Total operating income (TOI) 9,632 12,271 PBILDT 6,685 8,074 PAT 3,908 3,690 Total debt 21,486 22,204 Networth 18,367 19,314 Overall gearing (times) 1.17 1.15

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Total Debt/PBILDT 3.21 2.75 Interest coverage (times) 4.80 5.40 A: Audited;

As per unaudited 9MFY19 results, APSEZ on a consolidated basis reported TOI of Rs.8,795 crore (9MFY18: Rs.8,847 crore) and PAT of Rs.2,732 crore (9MFY18: Rs.2,761 crore).

Status of non-cooperation with previous CRA: Not Applicable

Any other information: Not Applicable

Rating History for last three years: Please refer Annexure - 2

Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to [email protected] for any clarifications.

Analyst Contact Name: Mr Maulesh Desai Tel: 079-4026 5605 Mobile: +91-85111 90079 Email: [email protected]

**For detailed Rationale Report and subscription information, please contact us at www.careratings.com

About CARE Ratings: CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices.

Disclaimer CARE’s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings/outlooks on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating/outlook may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors.

Annexure-1: Details of Instruments/Facilities Name of the Date of Coupon Maturity Size of the Rating assigned Instrument Issuance Rate Date Issue along with Rating (Rs. crore) Outlook Debentures-Non CARE AA+ (SO); September, 2012 10.50% September, 2021 40.00 Convertible Debentures Stable Debentures-Non - - -* 750.00 CARE AA+; Stable Convertible Debentures* *proposed

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Annexure-2: Rating History of last three years Current Ratings Rating history Date(s) & Date(s) & Date(s) & Date(s) & Sr. Amount Name of the Instrument Rating(s) Rating(s) Rating(s) Rating(s) No. Type Outstanding Rating assigned in assigned in assigned in assigned in (Rs. crore) 2018-2019 2017-2018 2016-2017 2015-2016 1)CARE AA+ 1)CARE AA+ 1)CARE AA+ Debentures-Non CARE AA+ 1. LT 40.00 - (SO); Stable (SO); Stable (SO) Convertible Debentures (SO); Stable (30-Mar-18) (31-Dec-16) (20-Jan-16) Debentures-Non 1)Withdrawn 2. LT - - - - - Convertible Debentures (16-Jul-15) 1)CARE AA+; Stable Debentures-Non CARE AA+; (30-Mar-18) 1)CARE AA+ 3. LT 750.00 - - Convertible Debentures Stable 2)CARE AA+; (17-Jun-16) Stable (04-May-17)

Annexure-3: List of entities getting consolidated with APSEZ (list as on March 31, 2018) Sr. Subsidiary/ Step-down % of shareholding by Name of the Entity No. Subsidiary/JV/ Associate APSEZ 1 Adani Petronet (Dahej) Port Pvt. Ltd. Subsidiary 74.00 2 Mundra SEZ Textile and Apparel Park Pvt. Ltd. Subsidiary 51.41 3 Adani Murmugao Port Terminal Pvt. Ltd. Subsidiary 100.00 4 Adani Kandla Bulk Terminal Pvt. Ltd. Subsidiary 100.00 5 Adani Vizag Coal Terminal Pvt. Ltd. Subsidiary 100.00 6 Adani Hazira Port Pvt. Ltd. Subsidiary 100.00 7 MPSEZ Utilities Pvt. Ltd. Subsidiary 100.00 8 Adani Logistics Ltd. Subsidiary 100.00 9 Adani Ennore Container Terminal Pvt. Ltd. Subsidiary 100.00 10 Mundra International Airport Pvt. Ltd. Subsidiary 100.00 11 Karnavati Aviation Pvt. Ltd. Subsidiary 100.00 12 Adani Warehousing Services Pvt. Ltd. Subsidiary 100.00 13 Adani Hospitals Mundra Pvt. Ltd. Subsidiary 100.00 14 The Dhamra Port Company Ltd. Subsidiary 100.00 15 Mundra LPG Infrastructure Pvt. Ltd. Subsidiary 100.00 16 Shanti Sagar International Dredging Pvt. Ltd. Subsidiary 100.00 17 Adani Kattupalli Port Pvt. Ltd. Subsidiary 100.00 18 Adani Vizhinjam Port Pvt. Ltd. Subsidiary 100.00 19 Adani Petroleum Terminal Pvt. Ltd. Subsidiary 100.00 20 The Adani Harbour Services Pvt. Ltd. Subsidiary 100.00 21 Mundra International Gateway Terminal Pvt. Ltd. Subsidiary 100.00 22 Adinath Polyfills Private Limited Subsidiary 100.00 23 Hazira Infrastructure Pvt. Ltd. Step-down subsidiary 100.00 24 Mundra LPG Terminal Pvt. Ltd. Step-down subsidiary 100.00 25 Adani Dhamra LPG Terminal Pvt. Ltd. Step-down subsidiary 100.00 26 Dhamra LNG Terminal Pvt. Ltd. Step-down subsidiary 100.00 27 Abbot Point Operations Pty Ltd. Step-down subsidiary 100.00 28 Abbot Point Bulkcoal Pty Ltd. Step-down subsidiary 100.00 29 Adani International Terminals Pte Ltd Step-down subsidiary 100.00 30 Adani International Container Terminal Pvt. Ltd. Joint Venture 50.00 31 Adani CMA Mundra Terminal Pvt. Ltd. Joint Venture 50.00 32 Dholera Infrastructure Pvt. Ltd. Associate 49.00

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