Fitch Assigns Negative Outlook on Adani Energy

Fitch has issued a negative outlook for Adani Energy Solutions (AESL) reiterating concerns pertaining to the ongoing U.S. investigations that could expose poor governance and affect financial stability. The agency cautioned that the outcome of the probe can take a huge toll on a company's credit profile.

Fitch said in a statement, “The risks associated with Adani Energy's liquidity and funding requirements have moderated,” Fitch said in a statement.”

It added, “But the proceedings and outcome of the U.S. investigations could reveal that the group's corporate governance practices are weaker than we expected, potentially leading to negative rating action in the near to medium term.”

Last year, the U.S. indicted Adani Green board members for alleged securities and wire fraud, which shed light on corporate governance practices within the Adani Group. Fitch noted that the outcome of the investigation could impact AESL’s access to future markets.

The agency warned, “A conviction or any indication of weaknesses in Adani group entities' governance practices and internal controls that may come to light as part of the process could put pressure on the ratings.”

It added that AESL’s medium-term capital expenditure (capex) plans could impact if access to funding weakens.

Recently, AESL’s key subsidiary, Adani Electricity Mumbai Ltd. (AEML) was affirmed a ‘BBB-’ rating by Fitch. The rating agency highlighted that AEML benefits from a cost-plus tariff model, ensuring predictable revenues from electricity transmission and distribution in Mumbai.

It stated, “We expect the obligor group's EBITDA, adjusted for accrued income, to remain stable at ₹21 billion-22 billion a year, as AEML maintains asset availability above regulatory thresholds.”

Interestingly, even after coming under scrutiny AESL is expanding aggressively. It has won a 22.8 million-unit smart metering project across five Indian states, expected to contribute over 25% of EBITDA by FY26.

Outlook on debt, liquidity and future

AESL has a cash balance of ₹60.6 billion, with no major debt maturities in the next 12 months, apart from a $500 million bond, which is set to mature on August 26, Fitch said. The agency also pointed out that increased reliance on domestic refinancing could shoot up refinancing risks over time.

The agency also emphasised that continued governance lapses, financial stress, or legal setbacks could invite a downgrade. In case charges of bribery, securities fraud, or impaired financial flexibility creep in, Fitch will be required to take a negative rating action.

Fitch will continue to assess the U.S. investigation and monitor its impact on Adani Energy’s governance, internal controls, and overall credit strength.