Adani Projects In Asia Frozen After U.S. Bribery Charges

Indian conglomerate’s green energy unit risks future financing hurdles, observers say

MADURAI, India — Adani Group’s energy and infrastructure deals across Asia could come under intense scrutiny after U.S. authorities indicted the Indian conglomerate’s billionaire founder in a bribery and securities fraud case, observers say.

News of the charges against Gautam Adani, one of the world’s wealthiest men, and a half dozen others including his nephew shaved more than $26 billion off the market value of the ports-to-telecom group, followed by credit rating downgrades.

Shares in Adani’s companies have clawed back ground since the charges were made public last week. But the scandal has dealt a blow to the company’s reputation, threatening to upend deals including wind power and port projects in Sri Lanka, power supply agreements in Bangladesh and energy investments on Adani’s home turf in India.

At the heart of the controversy is Adani Green Energy, which owns, builds and operates utility-scale, grid-connected solar and wind farm projects. The charges allege that Indian government officials were bribed to the tune of $265 billion in exchange for granting solar energy contracts to Adani Green Energy, and that U.S. investors were misled during fundraising efforts.

“Adani Green Energy will have difficulty raising finance in international capital markets after this expose,” said Sudha Mahalingam, an energy economist and adjunct professor at India’s National Institute of Advanced Studies.

Adani Group, which did not respond to requests for comment, earlier called the allegations “baseless” and described itself as a “law-abiding organization.”

In the wake of the charges, Kenya canceled multimillion-dollar expansion and energy deals with Adani, while French petroleum giant TotalEnergies said that it would pause further investment deals with the Indian group.

In Bangladesh, the conglomerate was already facing pressure after a court ordered a probe into a power deal under which Adani’s Godda power plant in India exclusively transmits electricity to the smaller South Asian nation. Adani is facing claims it charged much higher rates than other power producers in India.

The investigation was triggered by discrepancies involving both environmental concerns as well as financial issues, said Manzill Murshid, a human rights lawyer and president of Human Rights and Peace for Bangladesh.

“Absolutely nothing about the deal was made public,” he told Nikkei Asia. “The court has sought the help of international lawyers to review the agreement that Bangladesh has entered into.”

The committee is also investigating separate power-generation contracts, including a coal-fired plant built with Chinese companies and other Adani-linked agreements with local businesses.

Meanwhile, southern India’s Andhra Pradesh state has been in the spotlight over allegations that the bulk of bribes were paid to a government official in exchange for securing power supply contracts, a claim rejected by the state’s former chief minister.

The U.S. case could also create hurdles for Adani Green’s energy park in western Gujarat state, billed as the world’s biggest renewable energy project. The 50-gigawatt development, set for completion by 2030, accounts for roughly a tenth of India’s clean-energy goals.

The government of Indian Prime Minister Narendra Modi has distanced itself from the brewing scandal. But Adani Group has been a key player in Delhi’s clean-energy and infrastructure upgrade drive.

“Adani’s deals in India may not be affected as much, especially because of his perceived proximity to the government. I doubt it will lead to the cancellation of his deals,” Mahalingam said.

The group’s biggest challenges could be in Sri Lanka, where a new government has swept to power on an anti-corruption ticket.

The U.S. International Development Finance Corp. has said it is reviewing its plan to lend $550 million for a port development project backed by Adani Group, and an Adani Green Energy wind power project in the north of the island nation is now under even more scrutiny.

In 2022, Adani Green Energy struck the $442 million wind-project deal, but it was controversial even before the U.S. indictment. The former chairman of Sri Lanka’s electricity board told a probe two years ago that he had been ordered to award the project to Adani after India’s Modi pressured then-president President Gotabaya Rajapaksa. The Sri Lankan leader denied the claims and the electricity board chief later quit, saying he had lied about the affair.

Earlier this year, environmental activists and local residents challenged the Adani project in Sri Lanka’s top court over claims it lacked transparency. “We knew there were problems with this deal. There was no calling for tenders. There were better bids available that were overlooked. The previous government went ahead with it, without scrutiny or negotiation that could have gotten Sri Lanka a better agreement,” said Prashan De Visser, general secretary of the National Development Front, a new political party that contested Sri Lanka’s November parliamentary elections.

“Sri Lanka has dealt with a lot of corruption in its recent history and is at a phase in its growth where the lack of transparency can no longer be tolerated,” he added.

Sri Lanka’s new, left-leaning President Anura Kumara Dissanayake has pledged to revisit the Adani wind-power deal, the country’s biggest renewable energy project to date.

“It’s clear that we need greater transparency in government processes to give citizens the opportunity to assess whether our lawmakers are working in our interests by securing these deals,” De Visser said.

The U.S. case is likely to stoke calls for greater transparency in big projects involving private companies and government contracts.

“The scope for manipulation and crony capitalism in such a setup is immense,” said Mahalingam at the National Institute of Advanced Studies. “And when there’s no transparency in these processes, ultimately the consumer pays the price.”

Stock market hangover from indictment of Asia’s second-richest man likely to linger

When Gautam Adani, Asia’s second-richest man and founder of rising Indian conglomerate Adani Group, was indicted in a U.S. federal court on bribery charges, investors braced for a shock similar to last year, when the company was roiled by accusations of financial improprieties by short-seller Hindenburg Research. That episode wiped $130 billion from the group’s market value.

So far, the dives Adani affiliates have taken on the stock market are smaller than in the previous crisis, but the indictment still managed to raise eyebrows. Foreign investors are rethinking their appetite for corporate governance risk in Indian investments, while lawmakers and authorities are set to investigate whether the conglomerate is guilty of other misdeeds, raising concerns that the shock waves from the current crisis may linger.

On Nov. 20, Adani, his nephew Sagar Adani and other defendants were named in an indictment alleging a scheme to pay bribes worth $265 billion to Indian government officials to execute “lucrative solar energy supply contracts,” along with allegations of wire and securities fraud. The Adani Group and its senior executives have denied the allegations.

Foreign investors were likely “generally aware” of the risks of investing in Adani after the Hindenburg allegations, but the indictment makes it “difficult for other corporations like Total Energies and Jefferies to associate with the firm,” activist investor Henry Kinnersley, co-founder of London-based Snowcap Research, told Nikkei Asia.

In May, Snowcap Research alleged, among other things, that Adani Green Energy, the focus of the U.S. indictment, had “obfuscated” key earnings forecast metrics given to investors.

The indictment “sets a kind of precedent that if a business raises capital in the U.S., then they are subject to the standards of the U.S. institutions. … You don’t get special treatment, and if something counts as poor governance in the U.S., then it’s poor governance anywhere,” Kinnersley said.

Adani Green Energy is among 12 listed companies under the conglomerate that span sectors from renewable energy, sea ports and airports, to building materials, food commodities and media. Some of  these subsidiaries are deeply imbedded in India’s infrastructure backbone and have greatly benefited from the group’s rapid expansion over the last decade or so.

“The Adani businesses require a lot of capex. … If the allegations turn out to be true and the U.S. dollar market becomes restricted [to Adani], then it could be problematic for them to access new capital,” said Mohit Mirpuri, equity fund manager at Singapore-based SGMC Capital.

Adani Green Energy had to cancel a bond sale reportedly worth $600 million shortly after the indictment came to light. Last Monday, the group said it had the capacity to service its debts for about 28 months. It added that it had a cash balance of 530.2 billion rupees ($6.3 billion), against gross debt of 2.58 trillion rupees, as of September.

Adani Green Energy shares rebounded toward the end of last week on rumors that some investors reassured their investment in the company, but remains down 6.3% from their trading level before the indictment as of Friday. Shares of the flagship group company Adani Enterprises traded 12.7% lower compared with the level before indictment.

The indictment, which centers on alleged illegal payments for a contract on a solar energy plant also dragged ESG (environmental, social, and governance)-related investments in emerging markets into the spotlight, traders and analysts said.

Morningstar Sustainalytics, which had given Adani Green Energy a low ESG risk rating, will “conduct a review of the company’s overall ESG risks” after the indictment, the company’s global head of sustainability research, Hortense Bioy, told Nikkei Asia.

“A lot of [emerging markets] were improving their ESG credentials through independent assessments and so on. … But this will force foreign investors to focus a lot more on the ‘G,’ going ahead,” said Amin Rajan, chief executive of London-based think tank and advisory group Create Research.

Foreign investors would also likely have a “lower pain tolerance” for such governance issues than domestic investors, analysts and traders said.

“With large companies like Adani and Reliance, the feeling is often that betting for them is betting for India. … For domestic investors that have seen the markets grow over the past, say, 20 years along with these firms, corporate governance might not be the top priority,” said Prashanth Tapse, senior vice president at Indian brokerage Mehta Equities.

However, the indictment has also sparked outrage in India. Last week, proceedings in India’s lower house of parliament were disrupted multiple times by lawmakers demanding a discussion of the case.

The country’s opposition has often accused the government of favoring Adani, who is from Prime Minister Narendra Modi’s home state of Gujarat and whose rapid rise — often fueled by lucrative government contracts — has mirrored that of the prime minister. Both have denied accusations that they are overly chummy.

India’s securities watchdog is looking into whether the Adani Group violated rules on disclosure of market-moving information, CNBC reported on Nov. 22. The watchdog has yet to release a final report on an earlier probe into Adani that began in the aftermath of the Hindenburg Research allegations last year.

“The close relationship between business and political parties are some of the major risks exposed by the Adani saga. … The bigger risk for the Adani Group and some other Indian enterprises is if there is a regime change, as they may be much more aggressive in investigating allegations about these enterprises,” said Mak Yuen Teen, a professor at the Centre for Investor Protection at the National University of Singapore.

Meanwhile, traders and analysts said there was some risk of the negative sentiment around Adani hurting other Indian conglomerates. Vedanta Resources, which is active in sectors such as mining and oil and gas, cancelled a sale of dollar-denominated bonds after the Adani indictment came into light, only to conduct it a week later.

Vedanta ended up accepting bids worth $800 million on a 3.5-year bond and a seven-year bond with coupon rates of 10.25% and 11.25%, respectively, Reuters reported Tuesday.

“The higher coupon rates reflect a cautious market sentiment. It is too early to conclude that the contagion from the Adani crisis is fully contained, however, Vedanta’s successful fundraising depicts investor confidence,” said Shweta Rajani, head of mutual funds at India’s Anand Rathi Wealth.

Higher corporate governance risk does not have to be “an inevitability of operating in India,” said Snowcap’s Kinnersley.

“There are many entities in India, like the Tatas, that are very highly regarded and command a lot of goodwill from foreign investors. … But in the long term, I think the message will be to trust, but verify,” said Create Research’s Rajan.

Additional reporting by Dylan Loh in Singapore.