Moody’s Investors Service has assigned a Baa3 rating with negative outlook, to the proposed USD senior unsecured bonds to be issued by Adani Ports and Special Economic Zone Ltd (APSEZ), the biggest port developer and operator in India with an annual capacity of 426 million tonnes.

The issuer rating and the rating of APSEZ’s existing senior unsecured bonds remain unchanged at Baa3.

“The outlook on the ratings is negative,” Moody’s said in a statement.

APSEZ will use the majority of the proceeds to refinance its existing debt and/or that of its subsidiaries, which could include Krishnapatnam Port Company Ltd, subject to the completion of its acquisition by APSEZ.

The company will use the remainder of the proceeds for other general corporate purposes.

The bonds will represent a senior unsecured obligation and rank equally with all of APSEZ’s existing and future unsecured and unsubordinated debt.

“As the proposed USD bonds rank pari passu to all of APSEZ’s existing and future unsecured and unsubordinated debt, the Baa3 rating of these bonds follows that of its existing senior unsecured bonds issued in 2017 and 2019 respectively,” said Abhishek Tyagi, a Moody’s Vice President and Senior Analyst in a statement.

APSEZ’s Baa3 issuer rating primarily reflects the company’s strong market position as the largest port developer and operator in India by cargo volume. The rating also takes into consideration the long-term growth potential of India’s economy as a whole, a key driver behind the large increase in the volume of traded goods over the past few years, he said.

Despite a temporary reduction in trade volumes and revenue due to the coronavirus outbreak, Moody’s expects that APSEZ’s credit profile will withstand the impact of the coronavirus given its moderate financial profile and robust liquidity heading into the fiscal year ending March 2021, as well as its ability to postpone capital spending.

Moody’s expects that APSEZ’s performance over next two to three years will be driven by the ramp-up of capacity relating to its recently commissioned ports and terminals and its growing share of containers, with the addition of new terminals to its portfolio.

However it said in the short term APSEZ is operating in a challenging global economic environment and its overall cargo volumes, excluding contributions from acquisitions, could decline by 10%-12% in fiscal 2021.

Moody’s said, “The negative rating outlook over the next 12 to 18 months reflects the negative outlook on India’s sovereign rating and the fact that virtually all of the company’s business operations are based in India.”

“Given the negative outlook, the rating is unlikely to be upgraded in the near term. But Moody’s could change the outlook to stable if the outlook on the sovereign rating changes to stable from negative,” it said.

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