The continuing weakness in governance in the Adani group, at the promoter level, as well as in some of the group companies, has reduced headroom for any rating upgrade, while increasing the risk for a spread of the contagion to other stable cash-generating entities within the group, Fitch Ratings said on Wednesday.

The two most stable profitable entities in the Adani Group are Adani Transmission and Adani Ports and Special Economic Zone. The ratings agency said that if the governance issues are not addressed in time then it could affect the companies’ financial flexibility.

The agency warned that ratings could be downgraded “if there is evidence of material risk from adverse developments at the sponsor level and other group entities, resulting significant impairment of the financial flexibility and financial profile of the rated issuers.”

It stressed on the need for a less concentrated and transparent ownership structure, that would be a positive for the group.

Majority of the senior debt of the Adani Group is offshore and secured with the much talked-about US dollar bonds maturing only from the middle of 2024. Cash flow generation that started this year and continues to March 2024 is seen boosting the liquidity of the companies and adding to the cash balances as of December-end.

The rating agency put out a detailed FAQ to address the concerns of investors with respect to the group.

Fitch has a stable outlook on the eight entities that it rates within the group. This reflected its views that the Hindenberg report’s allegations on governance issues had a ‘limited near-term impact’ on the company’s cost of funding and access to funds.

Data from the rating agency showed that related party loans across the group contributed zero to 23 percent to total debt. Some of the related party loans have been repaid with funds raised from Abu Dhabi-based Investment Holding Company and Qatar Investment Authority.

The average cost of foreign currency debt within the group ranged from 8.74 percent to 11.09 percent, with the dollar exposures being hedged.