JP Morgan gives 'overweight' rating to Adani Group bonds

In its report, JP Morgan rated three bonds of Adani Ports & SEZ and one from Adani Electricity Mumbai Ltd (a subsidiary of Adani Energy Solutions Ltd) as 'overweight.' It maintained a neutral stance on five other Adani bonds and assigned an 'underweight' rating to a bond issued by Adani Green Energy Ltd.

JP Morgan categorizes its bond ratings into three groups: 'overweight,' equivalent to a buy recommendation; 'neutral,' akin to a hold recommendation; and 'underweight,' which is comparable to a sell recommendation.

Discussing potential risks, the report noted that Adani bonds might perform better than expected if there is a swift resolution of US SEC and Department of Justice allegations against founder-chairman Gautam Adani and key aides over bribery charges, successful refinancing of upcoming bonds and credit facilities, and improved operational performance.

The Adani Group has dismissed the charges as baseless.

Following initial volatility, "spreads of the group's bonds, (since action by US authorities), seem to have settled, widening by about 100-200 basis points, with short tenor seeing more spread widening due to higher dollar prices," JP Morgan stated.

The report also highlighted near-term offshore debt maturities across several Adani  entities, including Adani Ports, Adani Green, Adani Airport Holdings (fully owned by Adani Enterprises), Ambuja Cement bidco entities, and Adani Energy Solutions.

Regarding Adani Green, it noted, "Overall, we take varying degrees of comfort, and believe that key to watch among the bond-issuing entities are mainly Adani Green, which has a decent-size loan (USD 1.1 billion) due in March 2025."

Although the bonds are not secured by collateral, JP Morgan emphasized their robust cash flows.

"Our preference is for cashflows over security," remarked Love Sharma of JP Morgan in the report.

The ability of Adani Ports to scale and grow using internal cash flows provides "strong comfort on the intrinsic equity value of such a business, which in turn reduces the scope for credit stress," the report added.

Upside risks to JP Morgan's neutral rating include "a quick resolution of the SEC/DoJ charges; successful refinancing of the upcoming bonds and credit facilities; and improved operating performance," the report stated.

Conversely, downside risks to its 'overweight' and 'neutral' ratings include an adverse outcome from the SEC/DoJ cases, related-party transactions within the group, and debt-funded mergers or capital expenditure leading to weaker credit metrics.