jp-morgan-rates-four-adani-bonds-as-overweight

JP Morgan has given an "overweight" rating to four bonds issued by the Adani Group, driven by confidence in the company’s ability to scale and grow using internal cash flows, which reduces the risk of credit stress.

 

The U.S. investment bank assigned the "overweight" rating to three bonds from Adani Ports & SEZ and one from Adani Electricity Mumbai Ltd, a subsidiary of Adani Energy Solutions Ltd. JP Morgan took a "neutral" stance on five other Adani bonds and gave an "underweight" rating to a bond issued by Adani Green Energy Ltd.

 

In its report, JP Morgan identified several factors that could impact the performance of Adani’s bonds. The bonds could perform better than expected if key issues are resolved, including the ongoing U.S. Securities and Exchange Commission (SEC) and Department of Justice (DoJ) investigations into Adani Group’s founder, Gautam Adani, and his aides on bribery charges.

The group has denied the allegations.

 

JP Morgan also highlighted the successful refinancing of upcoming bonds and credit facilities, as well as improved operating performance, as potential upside risks.

 

"Spreads of the group's bonds, which initially widened by about 100-200 basis points following the U.S. authorities' actions, seem to have settled," the report stated. Short-term bonds have been more volatile due to higher dollar prices.

 

JP Morgan expressed comfort in the cash flows of Adani’s bonds, even if some of them are not backed by security. “Our preference is for cashflows over security,” said Love Sharma, a JP Morgan analyst.

 

Adani Ports, in particular, is seen as a strong performer, with the company’s ability to grow using internal cash flows providing confidence in its intrinsic equity value, which reduces the scope for credit stress, the report added.

 

The report also singled out Adani Green Energy, which has a $1.1 billion loan due in March 2025, as a key company to monitor.

 

On the downside, JP Morgan noted several risks that could affect its "overweight" and "neutral" ratings, including an adverse outcome in the SEC/DoJ investigations, related-party transactions within the Adani Group, and debt-funded mergers and acquisitions or capital expenditure that could weaken credit metrics.

 

JP Morgan believes that Adani’s bonds remain supported by strong cash flows, but the performance of the group’s bonds will depend on how it navigates these challenges.