Moody’s affirms negative outlook on Adani Abbot Point Terminal


Sydney, March 22: US rating agency Moody’s on Wednesday maintained the Adani Group-run Abbot Point Terminal Ltd’s Ba2 bank credit facility rating, saying its outlook is negative.

“Moody’s Investors Service has on Wednesday affirmed Adani Abbot Point Terminal Pty Ltd’s (AAPT) Ba2 senior secured and senior secured bank credit facility ratings. The outlook remains negative,” the American agency said in a report here.

Ba2, a long-term rating, is judged to have speculative elements and a significant credit risk.

AAPT is part of an obligor group that has economic ownership of the Abbot Point Coal Terminal in North Queensland under a 99-year lease with state-owned lessor North Queensland Bulk Port Authority.

Adani Ports and Special Economic Zone Ltd is the ultimate holding company of the AAPT obligor group.

Moody’s said the Ba2 ratings also reflect AAPT’s indirect exposure to coal commodity risk, “although such risk has reduced over the past several months, with mining counterparties experiencing better cash margins, owing mainly to more favourable coal prices compared to a year ago”.

“The Ba2 ratings are supported by the take-or-pay contractual arrangements with AAPT’s coal mining counterparties, with the contracts providing for the socialisation of lost revenue in the event of counterparty default or contract termination,” Moody’s Senior Vice President Arnon Musiker said.

According to the agency, such a provision represents an important source of financial flexibility, given AAPT’s high financial leverage.

“The negative outlook primarily reflects the challenging nature of the debt refinancing task facing the company over the next 12 to 18 months, with around Australian Dollar (AUD) 977 million of debt — representing around 70 per cent of total debt — maturing in November 2018,” Musiker added.

Moody’s negative outlook also considers a degree of uncertainty associated with the outcome of tariff renegotiations with AAPT’s customer counterparties, “a process that is ongoing and that could take several months to conclude”.

“Moody’s understands that AAPT has plans to reduce the refinancing task, including applying the proceeds — from a partial novation and termination of its user agreement with a subsidiary of Rio Tinto — towards debt reduction.”

The agency, however, feels the amount of debt to be refinanced will remain challenging, and further progress in establishing and executing a reliable refinancing plan will provide support for the ratings.

“Challenges related to refinancing, the uncertainty surrounding tariff renegotiations, and the recontracting of the volumes of Glencore’s subsidiaries remain key issues over the near term,” the report said.

“The ratings could be downgraded if Moody’s expects that AAPT’s funds from operations (FFO)/debt will fall below 7 per cent on a consistent basis,” it said.

“A downgrade is also likely if Moody’s believes that (i) the company is experiencing difficulty in arranging refinancing, (ii) there is an increased risk of a covenant breach under the senior secured documents, and/or (iii) the company is not continuing its track record of compliance with environmental regulations,” it added.

Abbot Point Coal Terminal is situated 25 km north of Bowen in Queensland and is the northern most coal terminal in Australia. It forms part of the Adani Group’s $22 billion Carmichael coal mine and port-cum-railhead project in Queensland that is being opposed by some people.

The project, which has received all federal and Queensland government approvals, has been opposed by prominent Australians, who recently urged group Chairman Gautam Adani to abandon the project, citing public opposition, risks to miners’ health, climate change and potential impact on the fragile Great Barrier Reef.

The project involves dredging 1.1 million cubic metres of soil near the Great Barrier Reef Marine Park, which will then be disposed of on land.