Adani Ports and its inter-corporate debt problem

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Editor's note: On 3 February, S&P Global Ratings revised its outlook on Adani Ports and Special Economic Zone to “negative” from “stable”, citing concerns of increased cost of capital and reduced funding access. Then, on 3 March, ICRA followed by changing its outlook on the company to “negative”, due to a deterioration in the Adani group’s financial flexibility. The rating agency noted that “the group’s strong financial flexibility and APSEZ’s track record of refinancing a large part of its debt with borrowing [mostly from overseas debt capital markets] of longer tenures at lower interest were the key credit strengths, which have been adversely affected”. The revisions come at a time when APSEZ’s financial strength is key to the group’s health. An outlier among the group’s listed companies, the company has been the biggest contributor to its overall profits over the last five years and generates the most free cash. It is also the entity that has the highest institutional ownership, at over 25%. Its relative affluence within the group has made it the go-to company to park assets that bear even a …