Company Description

Adani Ports and Special Economic Zone (APSEZ) is India’s largest independent port developer and operator. The company has concessions to operate 15 ports across the country, with its flagship Mundra Port in Gujarat being India’s largest commercial port. In addition, it has operations in four countries outside India, including Israel, Sri Lanka, Tanzania and Australia.

APSEZ is part of the Adani Group, an Indian conglomerate that owns coal mines, power plants, ports, utilities and infrastructure businesses. The company is 66% controlled by Chairman Gautam Adani and his family. APSEZ is listed on the Bombay Stock Exchange and National Stock Exchange of India.

Overall Risk Assessment

We view Adani Ports and Special Economic Zone (APSEZ) as "Low Risk" on the LARA scale, given its: [1] established position as the largest independent port operator in India; [2] diversification in terms of cargo type and business segment; [3] stable margins and cash-flow generation; and [4] improved financial profile, with acceptable leverage. The main risks revolve around the company's related-party transactions and moderately high level of promoter share pledges (albeit these have decreased), as well as event risks arising from its aggressive expansion appetite. 

Our fundamental Credit Bias on APSEZ is "Stable". We do not foresee refinancing risks, thanks to the company’s good OCF generation. We expect leverage to remain stable in FY 2024-25. That said, APSEZ appears to have a renewed appetite for expansion (particularly in overseas markets, amid its already strong domestic position), which may present event risks.

Controversies for APSEZ are “Severe”, given concerns over related-party transactions and corporate governance at the wider Adani Group. In particular, the allegations arising from Hindenburg Research's short-sell report in January 2023 has had a significant reputational and financial impact on the company (due to weakened access to funding). In August 2023, Deloitte resigned as auditor and was replaced by BDO International. This was after Deloitte issued a qualified audit opinion for APSEZ’s FY 2022-23 results, as the auditor was unable to verify whether some transactions with parties highlighted by Hindenburg were related-party in nature.

In March 2024, Bloomberg reported that US prosecutors are looking into allegations that Adani Group was involved in bribing Indian officials for favourable treatment on an energy project. The company is also affected by controversies stemming from Adani Group's investment in the Carmichael coal mine in Queensland, Australia. Moreover, APSEZ has been impacted by allegations of environmental and biodiversity degradation, as well as adverse impact on livelihood of local fishermen at its Kattupalli and Vizhinjam Ports. Overall, the ESG Impact on Credit is “Strongly Negative”.

Governance Assessment

We assess Adani Ports and Special Economic Zone's (APSEZ) Governance as "Weak". The company is effectively controlled by founder and Chairman Gautam Adani, as well as his family. We note negatively APSEZ and parent Adani Group's aggressive and mostly debt-funded expansion plans. The company's controlling shareholders have a history of pledging their shares to lenders, albeit the percentage of shares pledged has declined over the past few years. APSEZ has ongoing related-party transactions. These are somewhat offset by the company's reasonable financial management, with leverage kept at a moderate level over the years. We deem Management Quality as weak. Major businesses within the Adani Group are listed, which should improve corporate transparency.

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