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3-CARE-Rating.Pdf Press Release Adani Enterprises Limited April 05, 2021 Ratings Facilities / Instruments Amount (Rs. Crore) Ratings[1] Rating Action Reaffirmed and removed CARE A; Stable / CARE A1 Long Term / Short Term 14,703.32 from Credit watch with (Single A; Outlook: Stable/ Bank Facilities (Reduced from 14,929.31) Developing Implications; A One) Stable outlook assigned Reaffirmed and removed CARE A1 Short Term Bank Facilities 50.00 from Credit watch with (A One) Developing Implications CARE A+ (SO); Stable Reaffirmed and removed 1,366.68 [Single A Plus (Structured from Credit watch with Long Term Bank Facilities # (Enhanced from 910.69) Obligation); Outlook: Developing Implications; Stable] Stable outlook assigned CARE A+ (SO); Stable / CARE A1+ (SO) Reaffirmed and removed Long Term / Short Term 380.00 [Single A Plus (Structured from Credit watch with Bank Facilities # (Reduced from 610.00) Obligation); Outlook: Developing Implications; Stable/ A One Plus Stable outlook assigned (Structured Obligation)] 16,500.00 Total Bank Facilities (Rs. Sixteen Thousand Five Hundred Crore Only) CARE PP-MLD A; Stable Reaffirmed and removed Principal Protected Market (Principal Protected-Market from Credit watch with 500.00 Linked Debentures Linked Debentures Single Developing Implications; A; Outlook: Stable) Stable outlook assigned Reaffirmed and removed Non-Convertible CARE A; Stable from Credit watch with 400.00 Debentures (Single A; Outlook: Stable) Developing Implications; Stable outlook assigned 900.00 Total Long Term (Rs. Nine Hundred Crore Instruments Only) Details of facilities / instruments in Annexure-1 #Rating is based on the Credit Enhancement which is available in the form of a ring-fenced cash flow structure as per the Trust and Retention Account (TRA) agreement for priority in debt servicing of loans availed for funding the implementation and operations of the Parsa East & Kanta Basan (PEKB) coal block project within Adani Enterprises Limited (AEL). Detailed Rationale & Key Rating Drivers The ratings assigned to the principal protected market linked debenture (MLD) issue, non-convertible debenture (NCD) issue and bank facilities of AEL have been removed from ‘Credit watch with developing implications’ in view of receipt of clarity regarding extent of impact on the credit profile AEL due to proposed acquisition of 74% stake in Mumbai International Airport Limited (MIAL). AEL’s management has articulated adherence to total external debt / PBILDT ratio of 6x for AEL on a consolidated basis. While CARE Ratings expects this ratio to be more than 6x for FY22 due to lower PBILDT from MIAL on account of impact of COVID-19 on the airports business, it is expected to correct in the subsequent year as the operations ramp-up. Further, AEL, as an incubator, has a policy of divesting businesses in infrastructure and utilities sectors once these businesses attain a certain scale of operations. In view of the same, AEL is expected to divest its stake in the airports business vertical in the near future in which case the ratio is expected to remain below 6x. The ratings continue to derive strength from vast experience of its promoters in various businesses, diversified and synergetic operations of the Adani Group, leading position of AEL in the integrated resource management (IRM) business in India wherein AEL imports coal through its established coal sourcing arrangements and sells to a diversified clientele, 1Complete definitions of the ratings assigned are available at www.careratings.com and in other CARE publications. 1 CARE Ratings Limited Press Release ramp-up in the operations of higher profit margin mining services business segment under AEL during FY20 and 9MFY21, improvement in the performance of solar cell and module manufacturing business during FY20 and 9MFY21 and reduction in the short-term borrowings upon significant reduction in exposure to power business vertical of the Adani Group in FY20. Further, the ratings take into account AEL’s financial flexibility by virtue of being part of the Adani Group and management’s articulation that the promoters would timely fund any shortfall in cash flows and to adhere to a specific tighter range of AEL’s consolidated total external debt / PBILDT going forward. The ratings also factor in receipt of final environmental clearance for AEL’s Australian coal mining project, takeover of the operations of three out of six airports awarded to AEL and signing of concession agreements for balance three airports along with appointment of senior experienced professionals and reputed consulting firms to help augment its capabilities specific to the airports operations business. CARE also takes cognizance of the fact that AEL’s Mining Division had availed the moratorium from the lenders (from March 2020 to July 2020) as a COVID-19 relief measure (as permitted by the Reserve Bank of India) for its facilities availed for the PEKB coal block project. However, subsequently these payments were made in July 2020. The ratings are, however, constrained by elevated project risk associated with AEL’s large-sized capex plans mainly towards its airports business vertical, Australian coal mining and related rail evacuation infrastructure while the Australian project is significantly delayed with AEL having made significant investments towards it. The ratings also factor increase in the capital expenditure plans over the next three years as compared to the one envisaged earlier. Further, AEL as an incubator is exposed to project risks as it plans to undertake large-sized projects simultaneously across varied lines of businesses wherein it does not necessarily have prior experience. The ratings are, further, constrained by corporate guarantee given for the bank facilities of one of the companies in the power business vertical, working capital intensive nature of its operations, moderate debt coverage indicators and risks associated with commodity price movement and foreign exchange rate fluctuations. The ratings assigned to the bank facilities availed for funding the implementation and operations of the PEKB coal block project within the ‘Mining Division’ of AEL continue to take cognizance of presence of a ring-fenced cash flow structure as per the TRA agreement for priority in its debt servicing providing credit enhancement from AEL’s standalone credit risk profile, presence of a long-term Coal Mine and Delivery Agreement (CMDA) with Rajasthan Rajya Vidyut Utpadan Nigam Limited [RRVUNL; rated CARE BBB+ (CE); Negative / CARE A3+ (CE) / CARE D (Unsupported Rating)] ensuring committed off-take at agreed upon pricing formula, improved collections from RRVUNL, increase in the volumes during FY20 and 9MFY21 along with superior profitability and debt coverage indicators. The ratings are, however, constrained by below average credit risk profile of its sole off-taker (RRVUNL) and regulatory risk associated with mining operations. Rating Sensitivities Positive Factors • Completion of major capital expenditure plans Negative Factors • Total external debt / PBILDT exceeding 6x on a sustained basis • Change in stance of the group towards funding of significant portion of the capex in AEL directly through promoter group Detailed description of the key rating drivers Key Rating Strengths Vast experience of the promoters of AEL in various businesses and diversified and synergetic operations of the Adani Group The promoters of AEL have more than two decades of experience in various businesses along with established relationship with global players. Over a period of time, Adani Group has evolved as a diversified conglomerate based in India having global operations with primary interests in infrastructure and utilities sectors while AEL continues to operate as the flagship company of the Group and plays a leading role in incubating new businesses for the Group. Adani Group was primarily involved in the imported coal trading business and gradually it has backward integrated its operations in domestic and overseas coal mining through AEL along with forward integration in ports, logistics, thermal and renewable power generation, power transmission and distribution through various other group companies. AEL has coal mining operations in Indonesia and has also acquired a coal mine in Australia. Further, AEL has a track record of successfully 2 CARE Ratings Limited Press Release incubating businesses across various sectors in the past such as ports, power transmission, thermal and renewable power generation and city gas distribution businesses. Leading position of AEL IRM business in India wherein AEL imports coal through its established coal sourcing arrangements and sells to a diversified clientele AEL, with its established business relations with coal suppliers of Indonesia, Australia and South Africa has evolved as India’s largest importer of thermal coal catering to the requirement of both private and public sector undertaking (PSU) clients. AEL has consolidated its position in the IRM business during the last decade and has developed strong business relationships with miners in Indonesia, Australia and South Africa for procurement of imported coal. AEL has developed business relationship with diversified customers across various end-user industries including coal-based thermal power generators, steel, textile, paper, brick and cement manufacturers etc. It enjoys major share in domestic PSU tendering business. It imports coal through all the major ports of India which saves the logistic cost and ensures timely delivery to its customers.
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