Ratings agency ICRA has placed the long-term rating of [ICRA]AA+ on outstanding bank facilities and non-convertible debentures of Adani Ports and Special Economic Zone Limited (APSEZL) under rating watch with negative implications.
This was after APSEZL announced the acquisition of a controlling stake of 75% in Krishnapatnam Port Company Ltd. (KPCL) from the existing shareholders at a total enterprise value of ₹13,572 crore.
The indicative timeline for completion of the transaction is by April 2020.
“The significant scale of the transaction, which, if successfully completed, will result in a gross debt addition of ₹6,200 crore and a cash outflow of ₹5,500 crore for APSEZL at a consolidated level. Effectively, KPCL’s acquisition, along with other acquisitions and capex done in the recent past, could result in an increase in the company’s net leverage (net debt/OPBDITA) in FY2021 and will push back the anticipated trajectory of improvement in the leveraging levels,” said ICRA in a statement.
KPCL operates the Krishnapatnam Port in Andhra Pradesh and registered volumes of 54.9 million tonnes in FY2019 and EBITDA of ₹1,332 crore.
The company had a high leverage of 4.6-4.7 times as on March 31, 2019. It has a track record of improving the cargo volumes and efficiency levels of its acquired ports at Dhamra and Kattupalli and has plans to achieve similar improvements at Krishnapatnam.
While ICRA notes that the acquisition could result in diversification of the target hinterland and cargo profile, consolidation of market share and operational synergies for APSEZL over the long term, however, the company’s ability to scale up cargo volumes and improve the performance of the port to more optimal levels, thereby leading to improvement in leveraging levels, would be a key monitorable.
As on September 30, 2019, at the consolidated level, APSEZL’s liquidity position remained strong with cash and liquid investments of ₹8,779 crore and significant unutilised working capital facilities.
APSEZL’s liquidity is supported by the inter-corporate deposits of about Rs. 1,245 crore available on call. While the completion of KPCL will result in about Rs. 5,500 crore of reduction in liquidity, APSEZL should continue to hold strong liquidity.
APSEZL has significantly high financial flexibility arising from its strong cash accruals and a proven track record in raising low-Get Outlook for Android
