Moody's down­grades AAP Ter­mi­nal

The Pak Banker - - 6BUSINESS -

Moody's In­vestors Ser­vice on Mon­day down­graded in­fra­struc­ture con­glom­er­ate Adani Group's Adani Ab­bot Point Ter­mi­nal Pty Ltd's (AAPT) se­nior se­cured and se­nior se­cured bank credit fa­cil­ity rat­ing to Ba2 from Baa3.

Moody's said the out­look on the rat­ings is neg­a­tive. The rat­ing ac­tion con­cludes the re­view for down­grade ini­ti­ated on 21 De­cem­ber 2015, Moody's said in a state­ment. AAPT is part of a 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 Ports Cor­po­ra­tion. Adani Ports and Spe­cial Eco­nomic Zone Ltd (that has Baa3 sta­ble rat­ing) is the ul­ti­mate hold­ing com­pany of the AAPT obligor group.

"The rat­ings down­grade re­flects the in­creas­ing like­li­hood of ma­te­rial volatil­ity in AAPT's cash flows due to the weak­ened po­si­tion of AAPT's coal min­ing coun­ter­par­ties, the sole source of such cash flows," said Mary Anne Low, a Moody's an­a­lyst, adding, "The ongo- ing se­vere pres­sure fac­ing the coal sec­tor trans­lates into an in­creased like­li­hood of AAPT's coun­ter­party con­tracts ei­ther not be­ing re­newed or sub­ject to early ter­mi­na­tion."

Given the ma­te­rial chal­lenges fac­ing the coal sec­tor, Moody's con­sid­ers that AAPT's fi­nan­cial lev­er­age and debt cov­er­age met­rics are no longer con­sis­tent with the pre­vi­ous rat­ings.

Moody's be­lieves that the cur­rent coal mar­ket down­turn is struc­tural in na­ture, with weak con­di­tions likely to per­sist. Such con­di­tions will erode the mine coun­ter­par­ties' fi­nan­cial ca­pac­ity over time, in­creas­ing the like­li­hood of a de­fault.

Un­like other in­fra­struc­ture as­set classes such as air­ports and toll roads, which ul­ti­mately de­rive rev­enue from an ex­ten­sive and broad base of cus­tomers, Moody's be­lieves that if an AAPT coun­ter­party de­faults, weak coal mar­ket con­di­tions will make it chal­leng­ing for AAPT to se­cure re­place­ment ton­nage on equiv­a­lent terms, it said. In Fe­bru­ary, Adani Group had se­cured the ap­proval of the Queens­land govern­ment for the $16.5 bil­lion Carmichael mine pro­ject in the state's Galilee Basin, clear­ing one more ob­sta­cle to start work on the coal mine, amid protests from en­vi­ron­men­tal ac­tivists in Aus­tralia.

Ac­cord­ing to Queens­land's depart­ment of en­vi­ron­ment and her­itage pro­tec­tion, it has is­sued a fi­nal so-called en­vi­ron­men­tal au­thor­ity for Adani's pro­ject. The group needs to se­cure fund­ing for this pro­ject and a min­ing lease from the Queens­land govern­ment. In De­cem­ber, Aus­tralia had al­lowed ex­pan­sion of the Ab­bot Point coal ter­mi­nal in Queens­land, which will en­able ship­ping of the fuel from mines in the Galilee Basin, in­clud­ing the Adani Group's $16 bil­lion Carmichael mine. The lat­est ap­proval will make the Ab­bot Point ter­mi­nal one of the world's largest coal ports.

The con­tro­ver­sial ex­pan­sion, which will see 1.1 mil­lion cu­bic me­tres of ma­te­rial dredged near the Great Bar­rier Reef, was granted ap­proval with 29 rid­ers. The ap­proval fol­lows an Aus­tralian court spik­ing a green group's at­tempt to block the Carmichael pro­ject, and rec­om­mend­ing min­ing leases in Oc­to­ber. Adani is fac­ing a num­ber of prob­lems in Aus­tralia. Adani Min­ing Pty Ltd, a unit of the group, is aim­ing to de­velop the Carmichael coal mine, which is ex­pected to yield 60 mil­lion tonnes of coal a year. The com­pany is build­ing a 189km rail­road to trans­port the coal.

The pro­ject has been op­posed by green groups. Adani claims the mine pro­ject will cre­ate 10,000 jobs and gen­er­ate $22 bil­lion in taxes and roy­al­ties.

On 15 Oc­to­ber, the Aus­tralian govern­ment re-ap­proved the Adani Group's coal mine and rail pro­ject in ac­cor­dance with the coun­try's en­vi­ron­ment laws, sub­ject to 36 con­di­tions. Aus­tralia's en­vi­ron­ment min­is­ter Greg Hunt had then said that the ap­proval is sub­ject to "36 of the strictest con­di­tions in Aus­tralian his­tory". "The neg­a­tive out­look how­ever re­flects the on­go­ing chal­leng­ing in­dus­try con­di­tions, and a de­gree of un­cer­tainty as to whether AAPT will gen­er­ate suf­fi­cient free cash flows to achieve the an­tic­i­pated delever­ag­ing, given that such cash flows are de­pen­dent on the con­tin­ued abil­ity of AAPT's coun­ter­par­ties to hon­our their take-or-pay con­tracts," Moody's said in a state­ment.

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