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Adani International Container Terminal Pte. Ltd. 'BBB-' Issue Rating Affirmed

Mar 01, 2023, 01:34 pm

• On Dec. 14, 2022, S&P Global Ratings published its revised criteria for rating project finance transactions, "General Project Finance Rating Methodology" and "Sector-Specific Project Finance Rating Methodology".

• The criteria update does not affect our assessment of the credit profile of Adani International Container Terminal Pte. Ltd. (AICTPL, or the project).

• Therefore, on Feb. 28, 2023, they affirmed our 'BBB-' issue rating on AICTPL.

• The stable outlook reflects our expectation that AICTPL will maintain predictable cash flow with fully market-based pricing and volume over the next 12-24 months. The minimum debt service coverage ratio (DSCR) should stay at about 1.72x during the bond's tenor (excluding the last period), as per S&P Global Ratings calculations.

SINGAPORE (S&P Global Ratings) Feb. 28, 2023--S&P Global Ratings today took the rating actions listed above. AICTPL is a container terminal operator based in Mundra, Gujarat, in northwestern India. AICTPL operates CT3 and CT3 extension, with four berths and a total length of 1,460 meters and cargo handling capacity of 3.4 million twenty-foot equivalent units (TEUs). Sub-concession rights for CT3 were granted in August 2012 and expire in 2031. The terminal's deepest available draft at berth is 17.5 meters. It is equipped with 17 super post panamax quay cranes, and is capable of handling ultra large container carriers with nominal capacity of 10,000 TEU and above.

AICTPL is a 50/50 joint venture between Adani Ports and Special Economic Zone Ltd. (APSEZ; BBB-/Negative/--) and Terminal Investment Ltd. (TIL). APSEZ is a part of Adani Group, an Indian conglomerate. TIL, the sixth-largest container terminal operator worldwide, is majority owned by Switzerland-based Mediterranean Shipping Co. SA (MSC), the largest shipping liner in the world. The joint venture was formed in 2011.

• Prime location with favorable water depth compared with other nearby ports, and broad rail and road connectivity to India's industrial hinterland.

• Resilient operating cash flow leading to a minimum DSCR of 1.72x in our base case.

• Three separate debt reserves in place to support debt servicing, particularly for the repayment of a balloon payment in the final period.

• Full market risk with no offtake contract or minimum volume guarantee features.

• Relatively large balloon payment at maturity weakens DSCR in the last period of the debt.

We affirmed our issue rating on AICTPL because we believe our revised criteria for project finance transactions does not impact our assessment of the project's creditworthiness.

S&P assess AICTPL's operations-phase stand-alone credit profile (SACP) as 'bbb-'. This incorporates our assessment of an operations phase business assessment (OPBA) of '6'. S&P revised the preliminary SACP on AICTPL to 'bbb+' from 'bb+' to reflect the minimum DSCR of 1.72x (excluding the last period). We exclude the DSCR corresponding to the final scheduled debt servicing period because the project has a strong reserving mechanism, which will help it meet repayment obligations in the last period by trapping sufficient funds in exclusive reserves for debt repayment.

S&P assess AICTPL's downside resilience as moderate. However, we apply a negative adjustment for debt structure due to the 20.5% balloon payment of the bond at the maturity of its 10-year tenor. S&P applied a further negative adjustment in holistic analysis to reflect the sensitivity of AICTPL's cash flows to movements in price and volume.

AICTPL's debt is fully secured and has cash flow waterfalls that prioritize operating expenditure and debt service over distributions. Given the ring-fenced assets, in our view, the structure sufficiently protects investors. As such, AICTPL is currently not affected by the governance risks and funding challenges for the larger Adani Group.

The stable outlook reflects our expectation that AICTPL will maintain predictable cash flow with fully market-based pricing and volume over the next 12-24 months. We forecast a minimum DSCR of 1.72x (excluding the last period to be paid out of reserves), as calculated by S&P Global Ratings.

S&P could lower the rating on AICTPL if the minimum DSCR is likely to fall below 1.60x, as calculated by S&P Global Ratings. This could occur in any of the following circumstances:

• Volume or tariffs deteriorate sharply from our expectations;

• Operating challenges lead to significant and sustained disruption of its port-handling capacity;

• Mundra loses market share due to ramping up of capacity in local or regional competitive ports; or

• S&P may lower the sovereign credit rating on India (BBB-/Stable/A-3).

S&P believes in an upgrade is unlikely over the next 12-24 months, because the rating on AICTPL is constrained by our sovereign rating on India. In addition, we do not expect the SACP to improve, given the overall financial metrics are constrained by the large balloon payment.

Nevertheless, S&P could raise the rating if:

•S&P raise the sovereign credit rating on India;

• S&P view AICTPL's SACP as higher than the sovereign rating.

The latter could happen if: (1) their analysis of AICTPL under their sovereign default stress test shows that it can repay its debt even in case of a foreign-currency-denominated sovereign debt default (see "Ratings Above The Sovereign--Corporate And Government Ratings: Methodology And Assumptions," published Nov. 19, 2013); and (2) we anticipate the minimum DSCR under our base case will be above 1.75x and downside resilience is high.

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