Analysts Abhishek Dangra and Richard M Langberg, authors of the report, also said serious lapses uncovered in the ongoing scrutiny of the conglomerate could also prompt negative rating action.
“This may include previously undisclosed material related-party loans, cash leakage, or misreporting,” it said in a client note on Wednesday.
The agency rates two corporates – Adani Ports and Special Economic Zone and Adani Electricity – apart from four project finance entities in the Adani Group.
S&P has published a report “Adani Group: The Known Unknowns” answering several questions about rating action for the group. “Although rating outlooks typically span 12-24 months, ratings or outlooks may change faster than this timeframe should we perceive a change in creditworthiness,” the analysts said in the report.
The agency had, in February, lowered the rating outlook for Adani Ports and Adani Electricity to ‘negative’ from ‘stable’ following allegations of ‘fraud’ and stock price ‘manipulation’ against the group by US-based short-seller Hindenburg Research.
The Adani Group has steadfastly denied the allegations and the group’s stock valuations, which had eroded by about $150 billion in the immediate aftermath of the report, have since recouped their losses in part.For the lowered rating outlook to be upgraded to ‘stable’, the analysts said they need to be “convinced” that governance practices and funding access will improve, in line with an investment-grade credit profile.
An independent panel of experts appointed by the Supreme Court is currently investigating the potential regulatory shortcomings in the disclosures by the Adani Group, and the conclusions of this panel will be a key watchpoint for rating changes, S&P said.
Findings of the report by the market regulator Securities and Exchange Board of India will also be considered. “If the investigation proves illegal activities by the group or points to serious wrongdoing, we could revise our assessment of management and governance down to weak from fair,” the analysts said.
The rating agency will also take into account any significant observations by auditors and company-appointed independent external reviewers, it said.
On funding, S&P will keep an eye out for whether the Adani Group is refinancing the loan it had taken to fund the acquisition of Ambuja Cements and ACC, among others.
The Adani Group has, over the past few weeks, repaid share-backed loans worth $2.15 billion.
“Any fresh share-backed loans raised by promoters could pose funding risks for the larger Adani Group and rated entities,” S&P said.