Fitch Ratings has affirmed Adani International Container Terminal Private Limited’s (AICTPL) USD300 million senior secured partially amortising notes due 2031 at ‘BBB-‘. The Outlook is Stable.
RATING RATIONALE
AICTPL’s credit assessment reflects its strategic position in the primary port of call in north-west India, revenue stability of long-term cargo contracts and operational efficiency. Its financial profile is stronger than that commensurate with a ‘BBB-‘ rating, reflecting considerable rating headroom at the current rating level. Still, the credit assessment is constrained by India’s (BBB-/Stable) ‘BBB-‘ Country Ceiling.
We regard AICTPL’s revenue volatility as low. AICTPL’s long-term terminal service agreement with Mediterranean Shipping Company S.A. (MSC) requires MSC to use AICTPL when its container ships call at Mundra Port, subject to AICTPL’s availability. AICTPL is 50%-owned by Terminal Investment Limited (TIL), the world’s sixth-largest container terminal operator which is majority-owned by MSC.
It benefits MSC, as an indirect shareholder, to reduce AICTPL’s volume volatility. MSC also uses AICTPL’s facilities when possible. The strong origin and destination (O&D) nature of AICTPL’s portfolio and the low revenue contribution from transshipment mitigate volume volatility, in Fitch’s view. This is weighed down, however, by its customer concentration risk and a back-loaded amortisation profile.
KEY RATING DRIVERS
Best-In-Class but Large Single Counterparty: Revenue Risk (Volume) – High Midrange
AICTPL is India’s largest container terminal by container throughput and the gateway to landlocked north-western India. Its deep draft and 17 post-panamax quay cranes make it one of the port’s two terminals that can handle container ships of up to 18,000 twenty-foot equivalent units (TEU). MSC’s cargo contributes more than 70% of AICTPL’s throughput.
AICTPL benefits from its strategic location, extensive rail and road links, and modern infrastructure and as such we believe that even if MSC’s credit profile deteriorates or MSC stops routing cargo to AICTPL’s terminal, other shipping lines are likely to fill the void due to capacity constraints at Mundra Port’s other terminals. Nevertheless, our volume risk assessment is moderated by customer concentration and volatile transshipment volume. Transshipment cargo contributed over 40% of the terminal’s throughput in the past three years, but less than 25% of revenue.
Limited Flexibility in Modifying Tariff: Revenue Risk (Price) – Midrange
AICTPL has the flexibility to fix tariffs under a sub-concession with Adani Ports and Special Economic Zone Limited (APSEZ, BBB-/Stable). Its long-term terminal service agreement with MSC sets a fixed price with annual tariff escalation and ends with the APSEZ sub-concession in 2031. However, the agreement lacks take-or-pay or minimum throughput guarantees, unlike container terminal sector norms, which weighs on our price-risk assessment. AICTPL also regularly negotiates tariffs with other customers without these clauses.
Limited Capex Requirement: Infrastructure Development/ Renewal – Stronger
AICTPL has operated above the 70% optimal port level for the past three years (FY24: 90%), even after capacity expanded in the financial year end-March 2023 (FY23). Management does not expect a material drop in efficiency, in line with their record; other terminals within Mundra Port also operate above optimal levels. We expect AICTPL to undertake some capex to add machinery, if required, in order to maintain its operating efficiency level.
Modern equipment and a deep draft allow it to handle ultra-large vessels. The terminal requires limited maintenance capex, with dredging handled by APSEZ. The sub-concession agreement requires APSEZ to maintain a minimum depth of 15.5m at the entrance channel and turning circle, and 17.5m by the berth, at no cost to AICTPL.
Robust Structural Protection: Debt Structure – Stronger
The USD300 million debt is a senior secured 10-year partially amortising note, with a 20.5% balloon repayment at maturity and back-loaded amortisation profile. Noteholders benefit from protective structural features to restrict distributions: 100% of cash will be trapped if the 12-month backward-looking debt-service coverage ratio (DSCR) drops below 1.50x or if the project life cover ratio drops below 1.95x.
The notes also have a six-month debt service reserve account. Risk from 20.5% balloon repayment at maturity is mitigated by a senior debt restricted amortisation account that requires the issuer to sweep cash up to the outstanding debt-servicing amount, including principal and interest, starting from three years prior to the maturity date. The company relies on natural hedging to manage foreign-exchange risk. Nearly 90% of its revenue is in US dollars.
Financial Profile
Fitch’s base case largely adopts management’s forecasts for operating costs throughput growth that is capped at 80% of the utilisation rate for FY25 to FY31, and a 3% tariff increase. We do not factor any tariff increase for MSC cargo from FY25 to FY27. We exclude the terminal value from cash flow available for debt servicing to assess the cash flow from operations only. Fitch’s base case generates an average DSCR of 2.8x, with a minimum of 1.2x in 2031 and 2.4x in 2030, excluding 2031. The base case generates a five-year average net debt/EBITDA of 1.4x, with a maximum of 2.0x.
Fitch’s rating case incorporates lower tariff growth and stress on operating expense, while throughput is capped at 70% of the utilisation rate for FY25 to FY31. We have also not factored further capex for machinery enhancement in our FRC. Our rating case generates an average DSCR of 2.5x, with a minimum of 1.0x in FY31 and 2.0x in FY30, excluding FY31, which is the end of the concession and repayment period.
Repayment in FY31 is mitigated by a senior debt restricted amortisation account building up in the three years prior to the maturity date of the notes. AICTPL has to make payment into the account up to the outstanding debt-servicing amount until the maturity date, including principal and interest. Fitch’s average DSCR excludes this account. Fitch’s rating case generates a five-year average net debt/EBITDA of 1.6x, with a maximum of 2.1x.
PEER GROUP
We view APSEZ as the most comparable to AICTPL among peers. APSEZ is India’s largest commercial port operator and benefits from a diverse portfolio. It is the concession holder for Mundra Port and one of AICTPL’s shareholders, while AICTPL operates one of the four terminals at the port. APSEZ also benefits from its long-term cargo contracts, which account for about 60% of total traffic. APSEZ has diverse customers, while AICTPL has significant exposure to indirect shareholder MSC and relatively volatile transhipment volume.
However, AICTPL benefits from a strategic location at Mundra Port, state-of-the-art infrastructure and operational efficiency. AICTPL also has a stronger debt profile, protected with robust covenants and security, compared to APSEZ’s corporate-like debt with limited protective features. Combined, their similar credit profiles are justified, in our view.
AICTPL is also comparable to JSW Infrastructure Limited (JSWIL, BB+/Positive). Similar to APSEZ, JSWIL is a large commercial port operator in India. It benefits from geographically diversified port locations along India’s eastern and western coastlines. However, JSWIL is rated lower than AICTPL due to its concentrated exposure to JSW group cargo and corporate-like debt with limited protective features. The Positive Outlook on JSWIL’s rating reflects our expectation that JSWIL’s gross leverage will mostly remain below Fitch’s upgrade sensitivity, despite the company’s increased investment plan.
Port of Melbourne (issuing entity, Lonsdale Finance Pty Ltd: BBB/Stable) is the primary port of call serving the Victorian and broader Australian market, with limited competition. Its rating benefits from a diversified landlord port business model, long concession life, and low infrastructure development and renewal risk. It is comparable in operational scale to AICTPL and handled 3.3 million TEU in FY24 (end-June).
However, AICTPL has a stronger debt structure due to its amortisation debt that is protected with robust covenants and security, compared with Port of Melbourne’s corporate-like debt structure with minimum protective features. Port of Melbourne also has relatively high net leverage and considerable refinancing risk. Nevertheless, its overall stronger qualitative attributes support higher leverage. AICTPL’s credit rating, on the other hand, is capped by India’s Country Ceiling.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
– Average annual DSCR in Fitch’s rating case drops below 1.8x persistently on operational underperformance;
– Lowering of India’s Country Ceiling to ‘BB+’.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
– An upgrade of India’s Country Ceiling to ‘BBB’, from ‘BBB-‘, with no deterioration in the credit profile.
CREDIT UPDATE
AICTPL’s cargo throughput increased by 10% in FY24 due to volume ramp-up following capacity expansion completed in FY23. Stevedoring revenue, however, increased by 6% during the year, driven by higher handling charges, particularly on third-party cargo.
AICTPL’s transshipment cargo made up about 42% of total container throughput, a slight decrease from 47% in FY23. Total transshipment revenue remained relatively low at 16% of the total, as transshipment handling charges are less than half of O&D handling charges. Management expects transshipment cargo to remain at the current level in the medium term.
Capacity utilisation increased to 90% in FY24, from 82% in FY23 right after completion of the capacity expansion. The operating EBITDA margin was broadly in line with the historical level, at about 55%.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
AICTPL is capped by India’s Country Ceiling.
\ESG Considerations
The highest level of ESG credit relevance is a score of ‘3’, unless otherwise disclosed in this section. A score of ‘3’ means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch’s ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision.
Source: Fitch Ratings