The Brief: Adani Group At A Crossroads

THE INDICTMENT OF Gautam Adani and seven others in a U.S. court in an alleged $2-billion bribery scheme has shaken the ₹1.75-lakh-crore empire, hurting its operations. As alleged in the indictment, Adani Group paid more than $250 million as bribes to Indian government officials to obtain solar energy contracts, and concealed it from U.S. investors. Adani Group has dismissed the allegations as “baseless”.

On November 20, the United States Department of Justice (U.S. DoJ) and the United States Securities and Exchange Commission (U.S. SEC) issued a ‘criminal indictment’ and brought a civil complaint, respectively, against Gautam Adani and his nephew Sagar Adani. The U.S. DoJ also included Adani Green director Vneet Jaain in the criminal indictment. Reacting to various reports in the matter, especially about the alleged Foreign Corrupt Practices Act (FCPA) violation in the indictment, Adani Green Energy Ltd., which has been at the centre of the controversy, issued a statement saying the charges against its three directors, including the chairman, related to three counts of ‘criminal indictment’ but not ‘alleged FCPA violations’. The company clarified that these directors have been charged with three counts in the criminal indictment: Alleged securities fraud conspiracy, alleged wire fraud conspiracy, and alleged securities fraud. The conglomerate has pledged to take legal action.

Following the U.S. indictment order, around $30 billion was wiped out from 11 listed Adani Group companies a day after (November 21), as group stocks tumbled — reminiscent of January 2023, when U.S. short-seller Hindenburg’s report accused it of a ‘lack of governance’ and ‘use of tax havens’. It took Adani companies around a year to recover from the Hindenburg effect, through its focus on extensive strategic capital-raising initiatives.

In a statement issued on November 27, the conglomerate said it had suffered a loss of nearly $55 billion in market capitalisation since the U.S. corruption charges.

At the group level, Adani Green Energy withdrew the $600-million bond offering it had pitched to U.S. investors, amid the indictment. The company has already lost around $9 billion in value. Cracks in Adani’s global plans have also appeared, at least for now. Soon after Gautam Adani and seven others were hit with the indictment, Kenya’s President William Ruto cancelled two mega deals — a 30-year $1.85-billion deal to operate the country’s main airport and a $736-million project with Kenya’s electrical transmission firm. However, in a statement issued on November 22, Adani Group said “till date neither Adani Green Energy nor any of its subsidiaries have entered into any contract in connection with any airport or transmission line in Kenya.”

Elsewhere, in Sri Lanka and Bangladesh, trouble was brewing even before the indictment, and could now escalate further. Sri Lankan officials called for the scrutiny of Adani’s $442-million wind power deal, with President Anura Kumara Dissanayake labelling it a “corrupt deal”. Following the power transition in Bangladesh in August 2024, the new government has launched a probe into Adani Power over pricing concerns.

Israel, on the other hand, wants Adani Group and all Indian firms to continue to invest in the country, Israel’s envoy to India, Reuven Azar, said in an interview to a news agency, adding, the allegations by U.S. authorities were “not something that’s problematic” from Israel’s point of view.

Analysts and experts are divided on the outcome of the bribery charges, and its effect on the expansion plans of the group, which is present in more than 50 countries. Flagship Adani Enterprises Ltd., as per its FY24 annual report, has allocated 80% of its $9-billion capex towards boosting new businesses such as green hydrogen ecosystem, airports, roads, and data centres. Its 12 GW mega solar power project with U.S.-based Azure Power Global — touted as the biggest-ever awarded by the Solar Energy Corp. of India (SECI) — is in the eye of the storm. It entails an investment of ₹45,000 crore, which is expected to create 40,000 jobs and reduce 900 million tonnes of CO2. Adani Group has also announced plans to invest $10 billion in U.S. energy and infrastructure projects.

Ratings major S&P, meanwhile, has cut its outlook on Adani Ports to ‘negative’, citing the potential impact of the indictment across the group. It says cash flows will be affected “if funding access weakens” or “funding costs rise”.

Moody’s Ratings has also termed Adani’s indictment as ‘credit negative’. It changed its outlook on all seven group entities to ‘negative’ from ‘stable’, saying the latest charges will likely “weaken” Adani Group’s access to funding and increase its capital costs. The U.S.-based Fitch has also put a few Adani Group bonds on “ratings watch”.

Ambareesh Baliga, an independent market expert, says the group’s growth strategy, which relies heavily on leveraging and raising funds, could face temporary hurdles in the near term. “For example, the strategy of leveraging for growth requires them to raise debt or equity. Right now, both will be challenging, at least for the next four to six months.”

On home turf, Adani faces additional scrutiny from regulators. The stock exchanges have already sought his clarification on the latest allegations. The Securities and Exchange Board of India is also reported to be probing whether Adani failed to disclose information about the DoJ inquiry. Its ongoing probe report into Adani’s alleged ‘stock manipulation’ and the use of ‘tax havens’ is also awaited. With the current allegations, this scrutiny will be closely watched.

In light of the developments, can the current probe unsettle bilateral ties between India and the U.S.? Analysts believe relations are unlikely to change significantly, as the indictment pertains to a law enforcement matter. India-U.S. relations remain steadfast despite India’s stance on the Russia-Ukraine conflict and allegations surrounding a Khalistani separatist’s assassination attempt in the U.S., both of which have tested the partnership’s resilience. The dynamics could shift towards India’s favour even more, especially with the Donald Trump administration set to take office in January 2025.

American entrepreneur and investor Balaji S. Srinivasan doubts whether Trump would continue pursuing the case, dismissing it as far-left Democrats engaging in “lawfare” across borders. “Gautam Adani is an Indian magnate, one of the most prominent men in India. Now comes the Democrat DoJ, indicting an Indian doing business in India for some ostensible violation of US law,” Srinivasan had tweeted.

Criminal lawyer Vijay Aggarwal dismisses the DoJ’s 54-page indictment as “just one more case”, likening it to the 2G or coal scams in India. “The indictment offers nothing legally,” he told a news agency. Jai Anant Dehadrai, counsel, Delhi High Court and Supreme Court, calls the current indictment a sketchy theory. “The indictment contains nothing about any money-trail, or any communication between those charged and the alleged officials, or for that matter even the names of the persons who were allegedly bribed,” he had said in a tweet.

Legal experts say the U.S. SEC will need to serve the summons on Adani and others, if at all, via proper diplomatic channels. Also, before the trial begins, it could lead to a settlement, like Goldman Sachs’ $2.9-billion settlement and those by Siemens AG ($1.6 billion), and Teva Pharmaceuticals ($519 million).

“In most such allegations, firms pay... one, two, three, four times,” says Abizer Diwanji, founder, NeoStrat Advisors, and former head, financial services, EY. If that happens, it could lead to enhanced scrutiny, or future curbs on raising funds for the Adani Group.

Meanwhile, the markets are waiting to see how the situation unfolds. Baliga says this isn’t the first time the group has faced such scrutiny, but the market impact has been muted. “This is the third or fourth time something like this has happened. That’s why the reaction hasn’t been severe. Initially, we saw a 20–30% crack, but the stocks bounced back. It hasn’t affected the overall market. Look at the Hindenburg report — did it shake the entire market? No.”

Analyst Arun Kejriwal agrees. “Adani Enterprises, lost 60-70% of its value during Hindenburg, but bounced back eventually,” he says. He thinks the issue could “die a natural death” in two months. “Once the new U.S. administration takes over, the anti-India sentiment will fade.”

No global investor has publicly criticised Adani so far. In fact, Abu Dhabi’s International Holding Company (IHC), one of the largest sovereign funds with $100 billion in assets under management globally, has said its outlook on investments in Adani Group remains unchanged despite the U.S. indictment. IHC is one of Adani Group’s key foreign investors.

However, some roadblocks, albeit temporary, are anticipated. Diwanji says after the indictment, the obligation for the Indian regulator to act is there as the implications are much larger. He agrees that in the interim, U.S. funding to India Inc. could dip.

“Compliance costs will go up significantly. People would want to do much more due-diligence. Secondly, money will be fuelled forward carefully.”

As the saga unfolds, it remains to be seen whether Adani emerges unscathed or whether the latest crisis reshapes his group’s future on the global stage.