From Fairfax:
The federal government has given approval to the revised expansion plans for the Abbot Point coal terminal, which will see dredged material dumped on land rather than at sea.
The expansion project, which will see 1.1 million cubic metres of material dredged, was approved by Environment Minister Greg Hunt with 29 conditions attached on Monday evening.
The approval is a big boost for Indian companies Adani and GVK, which have ambitions to build coal mines in Queensland’s Galilee Basin and export via the expanded Abbot Point.
Versus Moody’s:
Moody’s Investors Service has today placed Adani Abbot Point Terminal Pty Ltd’s (AAPT) Baa3 senior secured and senior secured bank credit facility rating under review for downgrade.
AAPT is part of an obligor 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 Port Authority.
Adani Ports and Special Economic Zone Limited (Baa3 stable) is the ultimate holding company of the AAPT obligor group.
RATINGS RATIONALE
“The rating action reflects the increasing downside risk for AAPT’s credit profile, a consequence of the financial pressures facing the company’s coal mine counterparties from challenging coal market conditions,” says Mary Anne Low, a Moody’s Analyst, adding, “the ongoing severe pressure facing the coal sector translates into an increased probability of AAPT’s counterparty contracts, the sole source of the company’s revenue, either not being renewed or subject to early termination.”
Consequently, AAPT no longer has sufficient financial flexibility under its existing capital structure to manage these escalating risks. Moody’s believes that the terminal’s ratio of funds from operations (FFO)/debt could decline to around 6% over the next 24 months, after factoring in the possibility of reduced tariff charges on the next tariff review date. The declining tariff reflects the sustained decline in the risk free rate used as a building block in its calculation compared with the previous review date. This level is below the rating tolerance level of 7 — 8%.
AAPT has the contractual right to recover shortfalls in revenue by increasing tariffs to remaining users on tariff review dates — which Moody’s understands occur at five yearly intervals – to ensure it earns a consistent return from remaining users. The fixed nature of the reset dates means however that cashflows will be reduced should counterparty failure occur in between scheduled review dates.
Moreover, other participants in the coal logistics chain also rely on take-or-pay contracts and will likely similarly seek to increase their tariffs to remaining miners in the event of counterparty failure. Such an event will result in a generalized level of increased transport costs for remaining mines which they may not be able to afford, and therefore elevates the uncertainty around AAPT’s ability to fully recapture lost revenue.
Given sustained coal market weakness, AAPT’s ratings will be transitioned over time in the absence of a committed executable plan to delever the company.
This matters because the QLD government ain’t kicking in:
The move prompted Queensland Premier Annastacia Palaszczuk to tell Adani not to expect any financial assistance from the state. “There will be no taxpayers’ money going towards this project,” she said.
Project still looks very unlikely.
