POSCO's venture with Adani seen as risk to credit rating

POSCO Group Chairman Choi Jeong-woo, right, and Vice Chairman Kim Hag-dong, second from right, pose with Adani Group Chairman Gautam Adani, second from left, and Chief Technology Officer Sudipta Bhattacharya during a teleconference to sign a memorandum of understanding regarding their business cooperation in this January 2022 file photo. Courtesy of POSCO Group

By Park Jae-hyuk

S&P Global Ratings warned Wednesday that POSCO may face risks in its credit rating, if the steelmaker continues to push ahead with business cooperation with India's Adani Group. The Indian conglomerate was hit hard recently by U.S. short-seller Hindenburg Research's claim that it has been involved in widespread corporate malfeasance, including market manipulation and accounting fraud.

“POSCO's memorandum of understanding (MOU) with Adani is non-binding, and the Korean firm's investment plan in India has not materialized yet, so at this moment, the crisis seems to have a limited impact on POSCO's credit rating,” S&P Director Park Jun-hong told The Korea Times. “If POSCO begins the investment, however, it could face a huge risk.”

The lead analyst for Korean corporates added that his agency will keep a close watch on whether POSCO will begin to spend cash for its cooperation with Adani. He also said that S&P will monitor how much money the steelmaker will spend in India and how it will raise the money.

“POSCO previously failed in its attempt to build a steel mill in India, following a conflict with local residents,” the S&P director said.

Another U.S. credit ratings agency, Moody's Investors Service, responded similarly the same day.

“The recent significant and rapid decline in the market equity values of the Adani Group companies has no material impact on POSCO,” Moody's Investors Service Assistant Vice President Sean Hwang told The Korea Times. “While POSCO has partnered with Adani Group in exploring an opportunity to build a new steel plant in India, the engagement remains at the MOU stage.”

S&P has already cut its rating outlook on two Adani affiliates ― Adani Ports & Special Economic Zone and Adani Electricity ― to “negative” from “stable” since the crisis. Moody's warned that the adverse developments are likely to reduce Adani's ability to raise capital to fund committed capital expenditure or refinance maturing debt over the next year or two.

Despite the warnings, POSCO remains uncertain about whether it will build an eco-friendly integrated steel mill in Gujarat, India, in cooperation with Adani.

“We are closely monitoring the situation,” a POSCO spokesman said.

In January last year, POSCO and Adani Group signed a non-binding MOU to invest $5 billion in various business opportunities, including the construction of an integrated steel mill utilizing renewable energy resources and green hydrogen.

“POSCO and Adani are able to come to great synergy in the steel and eco-friendly business with POSCO's state-of-the-art technology in steel making and Adani's expertise in energy and infrastructure,” POSCO Group Chairman Choi Jeong-woo said at the time.

Adani Chairman Gautam Adani also said that the partnership will contribute to the growth of India's manufacturing industry and help to strengthen India's standing in the green industry.

Even after Adani affiliate stocks plunged on Jan. 24 in the wake of Hindenburg's claim, POSCO's holding firm said during a conference call on its fourth-quarter earnings on Jan. 27 that the steelmaker has solved various problems regarding its joint venture with Adani one by one.

However, the Adani crisis even sparked an anti-government protest by India's opposition bloc, which claims a corrupt relationship between Prime Minister Narendra Modi and the Adani chairman. Earlier this week, hundreds of protesters held a rally urging the parliament to discuss the issue.