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India Ratings Upgrades Adani Green Energy to 'IND AA-' with Stable Outlook
India Ratings and Research (Ind-Ra) announced that it has upgraded Adani Green Energy Limited’s (AGEL) long-term issuer rating to 'IND AA-' from ‘IND A+’. The upgrade reflects a stable outlook, underpinned by several key factors contributing to AGEL's robust operational and financial performance.
AGEL, recognized as the largest renewable energy developer in India, continues to demonstrate sound operating parameters across its portfolio of assets and generates healthy free cash flow to equity. The company has also benefited from significant promoter infusion, effectively covering equity commitments. This infusion, combined with AGEL's strong execution capabilities, supports the continued expansion of its operational asset base.
One of the primary drivers for the rating upgrade is AGEL’s impressive scale-up in execution, with annual capacity additions projected to be between 4GW and 5GW over the medium term, an increase from the previous range of 2.5GW to 3.5GW. This growth trajectory underscores the company's strategic focus on expanding its renewable energy footprint.
Additionally, AGEL has achieved healthy counterparty diversification and a notable reduction in receivables, which has led to an improved (cash flow from operations-interest)/EBITDA conversion ratio compared to historical levels. The rating agency also highlighted AGEL’s policy shift regarding the leveraging of its holding company. AGEL has allocated funds towards the repayment of a $750 million hold-co bond, reflecting a prudent approach to debt management.
The creation of a strategic platform within AGEL in collaboration with Total Energies SE has further strengthened the company’s financial position. This platform facilitates partial asset monetization while retaining consolidation benefits. Moreover, the promoters’ equity infusion through warrants, with 25% already received, and AGEL’s ability to secure both debt and equity funding for its under-construction projects have been significant contributors to the rating upgrade.
Earlier in the month, AGEL reported a substantial 30% growth in EBITDA, reaching Rs 7,222 crore in FY24. This growth was driven by the addition of over 2.8GW in capacity over the past year, representing 15% of India’s total renewable energy capacity addition. Consequently, AGEL has revised its 2030 target from 45GW to 50GW, reflecting its commitment to scaling its renewable energy operations.
Analysts note that the upgrade also factors in Ind-Ra’s positive outlook on AGEL’s operational to under-construction book ratio, given its nearly 10.9GW operational capacity and increased annual capacity addition targets. The amortizing structure of AGEL’s debt, as opposed to the previous bulleted structures, ensures debt amortization, leading to a 15% tail life for projects, thereby lowering refinance and tail risks.
These combined factors have contributed to a reduction in AGEL’s leverage to more reasonable levels of 5.5-6.5 times, down from historically high levels of 9 times. The rating upgrade reflects Ind-Ra’s confidence in AGEL’s ability to maintain strong operational performance and manage financial risks effectively.
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