Fitch Ratings has affirmed India-based Adani Ports and Special Economic Zone (APSEZ) long-term foreign-currency issuer default rating (IDR) at 'BBB-'. The outlook is stable. The agency has also affirmed APSEZ's senior unsecured rating at 'BBB-' and the 'BBB-' rating on its USD 650 million 3.5% senior unsecured notes due 2020.

APSEZ's headroom under its ratings has shrunk, with slower-than-expected improvements in its financial profile in the financial year ended March 31, 2016 (FY16) due largely to higher capex and an increase in loans and advances (L&A), some to related parties. However, we have affirmed APSEZ's ratings with a Stable Outlook to reflect the company's strengths, operating flexibility and ability to generate strong cash flows. The management has also indicated a strong commitment to address the high capex and L&A, and their commitment to maintaining the ratings. We consider management's commitment in these areas, including not engaging in any aggressive M&A until the financial profile of the company improves to provide greater headroom for its ratings, as key drivers of its credit profile in the next 12 to 18 months.

The ratings continue to benefit from APSEZ's robust business model and strong market position. We expect the group's financial profile to improve over the next two years as the company generates positive free cash flows after M&A under our rating case assumptions, which include a recovery of related-party loans and reduction in its total indebtedness. We expect financial leverage, as measured by net adjusted debt (including off balance-sheet liabilities arising from guarantees) to EBITDA, to improve to around 4.0x in FY18 from 5.6x in FY16.

Shares of the company gained Rs 2.3, or 1.06%, to settle  at  Rs 220.30.  The total volume of shares traded  was  292,256 at  the BSE (Tuesday).