Adani Green Energy shares in focus as Fitch says outlook for AGEL RG1 stable

Shares of Adani Green Energy will be in focus on Friday morning after Fitch Ratings affirmed rating of Adani Green Energy Limited Restricted Group's 1's (AGEL RG1) $500 million senior secured notes due in 2024 at BB+, with outlook stable. AGEL RG1 includes three subsidiaries of Adani Green Energy namely Adani Green Energy (UP) Limited, Parampujya Solar Energy Private Limited (PSEPL) and Prayatna Developer Private Limited.

AGEL RG1 operates solar generation assets with a combined capacity of 930MW across India. The US dollar notes were issued in part by each of the three SPVs in the restricted group and stapled together to mimic the structure of the restricted group. The rating on AGEL RG1, Fitch said, is underpinned by long-term fixed-price power purchase agreements (PPAs), commercially proven technology with a pure solar portfolio, experienced operation and maintenance (O&M) contractors, and adequate financial profile.

Fitch said it considered revenue from sovereign-backed NTPC and Solar Energy Corporation of India (SECI), to which AGEL RG1 contracts 57 per cent of its total capacity, as fully contracted revenue and apply the fully contracted project threshold. SECI's credit quality does not constrain the rating, as revenue exposure to SECI presents a systematic sector risk, Fitch Ratings said.

AGEL RG1 contracts 40 per cent of its total capacity with NTPC and 17 per cent with SECI, with the remaining capacity contracted with various state distribution companies under 25-year fixed-price PPAs, which protect the portfolio from merchant price volatility, Fitch said.

"Noteholders benefit from a standard security package and robust covenants restricting distributions. The notes have a bullet repayment in December 2024, but the refinancing risk is mitigated by the long remaining terms of the PPAs for an operating solar portfolio, the group's recent ability to raise capital, and a senior debt restricted amortisation account. We assume the notes will be refinanced at maturity, with the refinancing debt amortised over the remaining PPA terms. However, less favourable refinancing terms and structure than the assumptions in Fitch's financial analysis may have rating implications," it said.

Group governance risks

Meanwhile, Fitch said governance weaknesses at the sponsor level and other group entities, including a highly concentrated shareholding structure across group entities and aggressive debt-funded investments at some entities, can expose all Adani group-related companies to higher contagion risks than previously considered, which can affect their financial flexibility.

"We believe these group-related risks to be lower for AGEL RG1 due to legal ring-fencing as per a strict cash flow waterfall mechanism in the US dollar notes," Fitch said.

Fitch noted that the Adani group is re-evaluating its investment plans, especially in non-infrastructure businesses.

"The Adani family recently sold $1.9 billion of shares in various group entities to a US-based fund. Two of the boards at Adani group companies - Adani Transmission Limited (BBB-/Stable) and Adani Enterprise - approved plans to raise a total of about USD2.5 billion from the stock market. The additional funding will support financial flexibility across Adani group entities, mitigating the risks."