Just In: ICRA cuts the rating outlook of Adani Total Gas to negative from stable

 Just In: ICRA cuts the rating outlook of Adani Total Gas to negative from stable

ICRA, one of India's leading credit rating agencies, has downgraded the rating outlook of Adani Total Gas (ATGL) to negative from stable. The rating agency cited concerns over the gas distribution company's financial risk profile, given its significant expansion plans and increasing leverage.

ATGL is a joint venture between the Adani Group and Total, a French multinational company. The company distributes natural gas in various cities across India, including Ahmedabad, Vadodara, Faridabad, and Khurja. It has been expanding rapidly in recent years, with plans to enter new markets and increase its customer base.

ICRA noted that ATGL's financial risk profile has weakened due to its significant capex plans and increasing leverage. The company has been investing heavily in infrastructure development, which has led to a sharp increase in its debt levels. ICRA expects the company's debt levels to remain elevated in the medium term, which could further weaken its credit metrics.

The rating agency also highlighted the impact of the COVID-19 pandemic on ATGL's operations. The company's sales volume was adversely affected during the pandemic-induced lockdowns, which led to a decline in its revenue and profitability. While the company's operations have gradually resumed, ICRA noted that the recovery in demand is likely to be gradual.

ICRA has maintained ATGL's long-term rating at AA- but revised the outlook to negative. The rating agency noted that the negative outlook reflects the risks associated with ATGL's significant expansion plans, increasing debt levels, and the uncertain operating environment due to the pandemic.

ATGL has responded to the rating downgrade by stating that it has a robust financial position and adequate liquidity to fund its capex plans. The company noted that it has a strong parentage in the Adani Group and Total, which provides it with the necessary support and guidance.

The Adani Group has been in the news recently due to its various infrastructure and energy projects, which have faced opposition from environmental activists and local communities. The group has been accused of violating environmental regulations and displacing local communities in various projects, including the proposed Carmichael coal mine in Australia.

The rating downgrade of ATGL is likely to have an impact on the company's borrowing costs and access to credit. A negative rating outlook could make it more challenging for the company to raise funds from the debt markets, as lenders may perceive it as a higher-risk borrower.

In conclusion, ICRA's rating outlook downgrade of Adani Total Gas reflects concerns over the company's financial risk profile, given its significant expansion plans and increasing leverage. The COVID-19 pandemic has also adversely affected the company's operations and revenue. The Adani Group has responded by stating that ATGL has a robust financial position and the necessary support from its parentage. However, the negative rating outlook could impact the company's borrowing costs and access to credit in the short to medium term.