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Adani Transmission’s proposed exclusivity agreement to acquire the power generation, transmission and distribution assets of Reliance Infrastructure would be incidental on right valuation of assets as experts believe anything above two times the regulated equity of Rs 3,500 crore would be negative for the company.
“Two times of regulated equity would be around `7,500 crore. If Adani Transmission pays anything above that, it could be seen as negative for the financials of the company as funding the transaction would be difficult,” said an analyst with a Mumbai-based brokerage on the condition of anonymity. Adani Transmission has total debt of Rs 8,660 crore as on March 31, 2017, while net debt to EBITDA is 4.09.
A successful acquisition of Mumbai distribution and generation assets would mark Adani Group’s entry into the distribution business. However, Moody’s Investors Services has kept Adani Transmission’s ‘Baa3’ senior unsecured rating unchanged as the ratings agency believes there was no binding offer made by the company, besides there is lot of uncertainty regarding final terms of any potential offer.
Abhishek Tyagi, vice-president and senior analyst at Moody’s, said: “To the extent that a successful transaction emerges, the impact on Adani Transmission’s credit profile will likely be negative, given the significance of the transaction and the likelihood that it would be substantially debt funded.”
“The ultimate impact on ATL’s credit profile would depend on a number of factors, including the ultimate terms of any deal and potential impact on ATL’s financial profile and capital structure, and our assessment of Reliance’s assets and potential capital requirements,” Tyagi added.
A potential transaction that is majorly funded by debt funded would likely to weaken ATL’s credit metrics within the rating, or beyond rating expectation, depending on the ultimate funding structure. “Such a transaction would also consider the impact that it will likely to have on the financial profile of the borrowing group that is owned by ATL and which underpins the ‘Baa3’ rating,” Tyagi said, adding, “The credit profile of the borrowing group considers a range of ring fencing features, including protective covenants.”
Adani Transmission in December last year agreed to buy 3,600 circuit kilometre of Western Region System Strengthening from Reliance Infrastructure for Rs 1,000 crore. The company got the approval of the Competition Commission in February and the deal is expected to close soon.
The proposed acquisition is subject to several conditions, including satisfactory due diligence, execution of a documentation, and certain approvals.
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