Sebi, the Indian capital markets regulator, has sought details from credit rating firms of all local securities and loans of the Adani group companies.
Last week, Sebi told ratings companies to share information including all outstanding ratings, outlook, as well as possible updates from discussions with the business group officials.
"Sebi is probably trying to ascertain whether the sharp fall in stock prices of several Adani companies would have any bearing on the liquidity positions and the debt repayment capability of the borrowing companies... Most of this information, however, is in public domain," The Economic Times reported a person aware of the communication saying.
No ratings company in India has changed their ratings or outlook of Adani companies since January 24, when Hindenburg Research released their report alleging accounting fraud, price manipulation. In the wake of the report, Adani stocks saw a rout, between January 25 and February 21. Stocks of 10 Adani companies have dropped between 21.7 per cent and 77.47 per cent, with Adani Total Gas falling the most, followed by Adani Green Energy and Adani Transmission.
Ratings companies usually factor in a sudden fall in share price as a 'material event', when reviewing a borrower's outlook and rating, or putting it under 'rating watch.' Large unexpected losses, fines by regulators, and damage from natural disasters like floods and earthquakes are among material events too. As per regulations, any rating action triggered by these events has to be notified within a week of said event.
A banker told ET, "Since it's close to a month since the Hindenburg report, it possibly cannot be a material event for any rating action. Under the circumstances, rating companies would keep track of other parameters, like a further fall in share price, or other developments for any action."
Bank loans make up most of the domestic debt. Thus far, some international credit agencies like Moody's and S&P have changed the 'outlook' of some Adani companies to 'negative' from 'stable'. A rapid decline in the market values of companies concerned prompted the move. However, local agencies seem to be in observation mode on the back of their expectation that the group's liquidity is more than the total maturing debts in 2023-24. Agencies also believe the group might review capital expenditure.
"...substantial capex being undertaken by Adani group, especially in diverse areas, exposes Adani group to inherent project execution risk. Nevertheless, the company management has conveyed their flexibility to moderate the pace of undertaking capex, given (that a) substantial portion of such capex is discretionary in nature. Going forward, significant increase in the external debt/PBILDT due to large debt-funded capex shall be critical rating monitorable for Adani group of companies," CARE ratings said in their February 2 update following the Hindenburg report. PBILDT is profit before interest, lease rentals, depreciation and taxation.
Fitch, on February 7, added "Fitch Ratings believes that Indian banks' exposure to the Adani group is insufficient in itself to present a substantial risk to the banks' standalone credit profiles."
Soon after the Hindenburg report some credit ratings agencies asked large state-owned banks if they would refinance the Adani group's foreign-currency debts over the next year. "Further credit support from domestic banks would be a key factor that rating agencies would track. Going forward there may be a dip in the share of foreign currency debt to rupee debt," an industry source noted.