Adani Ports and Special Economic Zone Limited

Amount Term Loans Non Fund Based Bank Limits Reduced from Rs.3131.34 crore to Rs. 2209.96 crore Enhanced from Rs. 944.00 crore to Rs. 2620.00 crore Rating Action [ICRA]AA- (Stable) reaffirmed [ICRA]AA- (Stable) reaffirmed

The long term rating of [ICRA]AA- (pronounced ICRA double A minus) has been reaffirmed to the Rs. 4829.96 crore (enhanced from Rs. 4075.34 crore) bank limits of Adani Ports and Special Economic Zone Limited (APSEZL) [formerly Mundra Port and Special Economic Zone Limited]. The long term rating carries a Stable outlook. ICRA also has an [ICRA]AA- rating on the Rs. 1275 crore Non Convertible Debenture programme and [ICRA]A1+ rating on the Rs. 625 crore Commercial Paper programme/short term debt programme of APSEZL. The ratings continue to reflect the strong business profile of Mundra port which has been consistently registering cargo growth at rates superior to the industry trend driven by its favourable operating characteristics viz. location, deep draft, multi-modal connectivity, highly mechanised port facilities; diversified cargo profile and long term customer tie-ups. In ICRAs view the medium to long term demand-supply scenario in the Indian port sector is expected to remain favourable driven by the anticipated trade growth and persisting congestion and capacity constraints at existing ports; this would in turn point to a favourable operating environment for well established incumbent operators like APSEZL. The ratings also factor in the currently strong financial position of APSEZL (Standalone) as reflected in its robust profitability; cash flows and credit metrics. Further, the companys revenues and profitability have a strong upside potential from the expected increase in cargo volumes resulting from its newly commissioned facilities (60 million tonnes dry bulk cargo terminal and 25 million tonnes SPM facility for crude oil handling for HMEL); those proposed over the medium term (additional bulk cargo handling facilities under ASPEZL and addition of third container terminal of 1.5 million TEU capacity under a subsidiary) and upscaling of business at SEZ and SPV level, which are expected to result in a healthy cash accrual position on a projected basis. Being a non-major port entity, APSEZL currently enjoys flexibility in tariff determination; this could however be vulnerable to an event based risk arising from the proposed provisions of the Draft Port Regulatory Bill 2011 which inter alia seeks to bring the tariff setting of non major ports under regulatory jurisdiction. The ratings are however constrained by the risks emanating from the companys recent large sized debt funded overseas acquisition (in Australia) including its indirect exposure to part of the debt which has been mobilized for funding the acquisition (US$0.8 billion borrowing based on a Letter of Comfort supported by APSEZL) and possibility of further cash flow support being extended by APSEZL to the overseas SPV in the event of any financial stress due to the strategic nature of the acquisition. While the business risks of the acquisition are partly tempered by the fact that the acquired asset is an already operating port terminal with long term take or pay cargo arrangements which gives it assured revenue streams, ICRA believes that over the medium term the financial profile of the overseas SPV is likely to be moderate owing to the gestation period associated with ramp up of cargo volumes and cash flows on one hand and high interest servicing burden resulting from high indebtedness on the other. Any significant slippages in the operating and financial performance of the overseas SPV and/or substantial increase in APSEZLs direct/indirect exposure to the SPV from the envisaged levels would be a key rating sensitivity. For refinancing the US$2 billion bridge loan which was initially used to fund the acquisition, APSEZL has already tied up US$0.8 billion debt at Australian holding company level which is backed by a letter of comfort from APSEZL. The company is in the process of tying up the standalone asset level funding of US$1.2 billion at the Australian subsidiary level and expects to achieve financial closure shortly. Any significant variation in the terms of this asset level funding from the proposed structure would be a rating sensitivity. While evaluating the credit profile of APSEZL, ICRA has also taken comfort from the company managements stated intent that they are evaluating various options to reduce the stress on the companys capital structure caused by this acquisition a s

well as other capex activities; the ability to do so over the near term shall be another key rating sensitivity. Apart from the substantial overseas exposure, APSEZL is in the midst of a large scale capex programme for its domestic operations (executing projects worth Rs. 6500 crore over FY 12-FY15 at standalone and SPV levels); the most recent addition being a new BOT terminal development at Kandla port for which the LOI has been recently awarded to APSEZL. The high capex outgo is expected to have a moderating impact on the level of the companys surplus cash flows; credit and return metrics over the medium term. The fact that most of these projects are being executed through SPVs; are funded on a project recourse basis; the companys so far conservative bidding pattern and the Groups strong demonstrated project execution track record, are some of the risk mitigants. ICRA further notes that APSEZL has various other projects in planning stage including further expansion at Mundra and pan India expansion through BOT and/or greenfield port ventures. Pending finalisation, these capex plans have not been factored in the current ratings. They will continue to be event based risks, impact of which will be assessed as and when the concerned plans materialize. ICRA also notes that the company has been extending temporary financial support to some of the ventures which are being carried on by its subsidiaries, the quantum of which is not significant at present. However going forward any material increase in support to subsidiaries might impact the credit quality of APSEZL. Over the longer term, the ports operations could face an increase in competitive pressures from the proposed expansion projects and new port developments on the Western coast; however the growing trade volumes and the fact that most of the proposed projects are in fairly early stages of execution at present, are risk mitigants. The companys operations are also exposed to event based risks emanating from pending litigations on the container terminal operations and SEZ development and corporate governance concerns emanating from past litigations against lead promoters/promoter group companies.

About the Company APSEZL is the developer and operator of the Mundra port located in the Kutch district of Gujarat on the west coast of India, under a 30-year Concession Agreement with the Gujarat Maritime Board (GMB), valid till February 2031. Currently 77.5% of the companys equity is held by Adani Enterprises Limited (flagship of the promoter Adani Group) while the balance is with the public. APSEZL commenced trial operations at Mundra port in 1998 and commercial operations in 2001 and in a decades time the port has grown to become the largest port in the country by cargo handling capacity (current capacity of 165 million tonnes). The port offers handling services for all kinds of cargoes viz. bulk- dry and liquid, crude and containers. Apart from the port operations, APSEZL is also the approved developer of a multi-product SEZ at Mundra and its surrounding areas. Further through its majority/wholly owned SPVs, APSEZL has a presence in the logistics business (container trains and ICDs) and is associated with port/terminal developments in Dahej; Hazira; Mormugao and Vizag in India and an overseas port asset in Australia. With effect from January 6, 2012, the company has changed its name to 'Adani Ports and Special Economic Zone Limited from 'Mundra Port and Special Economic Zone Limited' in order to have common identity with the promoter Adani Group. Recent Results In 2010-11, APSEZL handled cargo volumes of 52 million tonnes at Mundra port and reported an operating income (OI) of Rs. 1887 crore with a net profit (PAT) of Rs. 986 crore at a standalone level. In 9M 2011-12, the company has handled 49 million tonnes of cargo at the port and has reported an OI of Rs. 1840 crore with a PAT of Rs. 838 crore.

For further details please contact: Analyst Contact: Mr. K. Ravichandran, (Tel. No. +91-44-45964301) ravichandran@icraindia.com Relationship Contact: Mr. L. Shivakumar, (Tel. No. +91-22-30470005) shivakumar@icraindia.com

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