S&P Global Ratings downgraded the rating of Adani Electricity Mumbai (AEML). The rating agency has downgraded AEML’s rating from stable to negative. AEML’s holding company Adani Transmission (ATL) is going to spend more to expand its asset base, due to which its leverage level is expected to increase in the next two years. Because of this the rating agency has downgraded the rating of AEML. The agency has maintained the credit rating of AEML as BBB negative. The S&P’s BBB rating means that economic conditions are challenging, weakening its ability to meet financial commitments. AEML runs a power distribution business in Mumbai.
The company will spend 17 thousand crores in the next three years
ATL plans to spend Rs 17,000 crore in the next three years to complete some under-construction transmission projects. As a result, S&P estimates that ATL’s leverage level (the ratio of funds from operations to debt) will fall to 7 per cent in FY22 and then to 8.2 per cent in the next fiscal year over the next two years. The company’s leverage level in the last two years has remained in the range of 8-12 per cent. Leverage is projected to increase to over 9 per cent in FY2024 on account of earnings contribution from the commissioned project.
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Leverage growth forecast for FY2024
The company will revise the tariff in November 2022. Due to this, the leverage of AEML will increase to 10.5-12.5 per cent in FY2023 and FY2024 from just 2.7 per cent in FY2121. In the current financial year 2022, the leverage level has been estimated to be 7.5 percent. AEML had cash, short investments and FDs of Rs 17,000 crore at the end of March 2021 and has recently issued senior secured bonds worth $300 million under the company’s global medium-term note program. Moody’s Investors Service has assigned BaAA3 rating to the senior secured bond and the company will use the proceeds for capital expenditure, refinancing and general corporate purposes.
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