A series of newfound allegations rocked Indian conglomerate Adani on Thursday after its 62-year-old billionaire industrialist owner Gautam Adani was charged by US prosecutors on an alleged bribery and fraud scheme involving key contracts.
The charges plunged Adani Group deep into crisis for the second time in two years. It was sent reeling last year when a bombshell report from US investment firm Hindenburg Research claimed the conglomerate had engaged in a “brazen stock manipulation and accounting fraud scheme over the course of decades”.
Adani, Asia’s second-richest man, and seven other defendants were charged in an indictment by federal prosecutors on Wednesday on multiple counts. None of the defendants have been taken into custody, the prosecutors confirmed.
Who all are indicted?
According to the US Attorney’s Office, Eastern District of New York, “A five-count criminal indictment was unsealed in federal court charging Gautam Adani, Sagar R. Adani, and Vneet S. Jaain.” Sagar, who is Adani’s nephew, and Vneet, are both senior executives of Adani Green Energy Limited.
The indictment also charges Ranjit Gupta and Rupesh Agarwal, former executives of a renewable-energy company with securities that had traded on the New York Stock Exchange, and Cyril Cabanes, Saurabh Agarwal and Deepak Malhotra, former employees of a Canadian institutional investor, with conspiracy to violate the Foreign Corrupt Practices Act in connection with the alleged bribery scheme.
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What are the charges?
“The defendants orchestrated an elaborate scheme to bribe Indian government officials to secure contracts worth billions of dollars,” said Breon Peace, US attorney for the Eastern District of New York, which brought the case.
The US Attorney’s Office lists out allegations such as “conspiracies to commit securities and wire fraud and substantive securities fraud for their roles in a multi-billion-dollar scheme to obtain funds from US investors and global financial institutions on the basis of false and misleading statements.”
In other words, they have been charged with misleading US and international investors about the company’s adherence to antibribery and anticorruption standards when raising over $3 billion to finance energy projects from them, including a promise to pay over $250 million in bribes to Indian government officials in return for solar energy contracts that could generate more than $2 billion in profits over roughly 20 years.
The SEC, which is a civil law enforcement agency, provided detailed allegations against both Adanis and another one of the co-defendants, Cyril Sebastien Dominique Cabanes, in a parallel lawsuit. The regulator identified the firm involved in the alleged bribery scheme, which wasn’t named in the indictment, as Adani Green Energy Ltd.
According to the regulator, Gautam Adani spearheaded an effort to pay or promise hundreds of millions of dollars in bribes to Indian state government officials to induce them to enter contracts that Adani Green needed to develop India’s largest solar power plant project.
What the charges mean
In addition to being a monolithic presence in India, with ports, airports, power lines and highway developments, Adani Group attracts capital from around the world, including the US.
US law allows federal prosecutors to pursue foreign corruption allegations if they involve links to American investors or markets. The Adani probe is now at an advanced stage, according to multiple reports. The US DOJ can choose to pursue its investigations without notifying the parties.
Prosecuting the case would take months, if not years, meaning that it will fall to the incoming Trump administration’s Justice Department to determine how to proceed. Peace, the Brooklyn US attorney who was appointed during the Biden administration, is expected to step down and be replaced by whomever Donald Trump picks to lead the office, which is known as EDNY.
Although the US and India have an extradition treaty, it’s likely that India would fight to protect its citizens from being forced to stand trial in the US. If convicted the defendants could face years behind bars, prosecutors said on Wednesday.
Adani’s reponse to allegations
The Adani Group on Thursday strongly refuted bribery allegations made by the US Department of Justice and the US Securities and Exchange Commission against directors of the Adani Green as baseless. The Adani Group spokesperson in an official statement said all legal recourse will be taken.
“The US Department of Justice and the US Securities and Exchange Commission against directors of Adani Green are baseless and denied,” the statement read.
The group further highlighted a key aspect of the legal proceedings, noting, “As stated by the US Department of Justice itself, ‘the charges in the indictment are allegations and the defendants are presumed innocent unless and until proven guilty.’ All possible legal recourse will be sought.”
Wider implications seen
The New York court’s jurisdictional reach over an Indian company comes from Adani entities having tapped debt funds from the US. The group first withdrew their proposed 20-year debt fund raise of $600 million after this action by the US courts. The conglomerate’s several dollar notes listed overseas also saw heavy losses.
US-based GQG Partners LLC, run by emerging market investor Rajiv Jain who has been the most vocal backer of Adani, took a contrarian bet on Adani after a short-seller attack last year and saw its investment in the group balloon to $10 billion. It said it is monitoring the charges.
Kenyan President William Ruto canceled two deals with Adani Group - worth about $2.6 billion to manage the nation’s biggest airport and build high-voltage power-transmission lines - over alleged corruption, hours after the company’s billionaire founder was charged in the US.
Adani stocks crash
A renewable energy entity, Adani Green’s other major shareholder is TotalEnergies. There are 11 Adani entities listed on the leading Indian exchanges, with a combined market cap of nearly Rs14.25 trillion. Today’s crash wiped out Rs2.25 trillion.
Several listed subsidiaries of the Adani empire, which spans coal, airports, cement and media, collapsed in early trade. The losses at units of the Adani Group came as markets in most of Asia retreated. The conglomerate’s flagship Adani Enterprises dived almost 20 percent, while several of its subsidiaries lost between 10 and 20 percent.
India’s general index Sensex seems to have weathered the worst of it. The index dropped 477 points, as investors were trying to come to terms with what the US decision would mean for Adani entities.
After the Group announced its response to the US court verdict, stocks like Adani Power, ACC and Ambuja Cement are off their day’s lows - but ‘key stocks continue to remain painfully down anywhere from 9% to 20%’.
Foreign funds to get hit?
How foreign institutional funds with exposures to Adani Group companies will be decisive in the coming days. Investors are hopeful that a further headlong divestment can still be averted, if the group responds forcefully to the bribery charges.
Milan Vaishnav is an India-based technical analyst and he reckons if this Adani crisis drags on, this would have a bearing on the wider stock market universe in the country.
“Indian equities had been largely on a downtrend given the sustained FII (foreign institutional investor) selling after Trump’s election,” said Vaishnav. “The key indices , Nifty and Sensex have been down just over 4% since the November 5 election date.
“Adani Enterprises isn’t the only one dragging the Sensex down. The decline is much broader and top losers include SBI, Indusind Bank, NTPC, ITC, Reliance, etc.”
India’s banks are feeling the heat from all the events that transpired around the Adani stocks. The ones with exposure to the Group - SBI, PNB and Bank of Baroda - are trading with cuts.
The Hindenburg report alleged that Adani entities had used tax havens and had high debt levels. This led to a $150 billion wipe out in Adani group’s market cap of its listed companies. It had over the recent past been making a recovery from those levels when the latest turn of events happened.
The group has vigorously denied those allegations and its shares climbed back from their initial plunge caused by the report. After also initially cratering on the short-seller’s claims, Gautam Adani’s fortune has rebounded as well. He’s the world’s 18th richest person with more than $85.5 billion, according to Bloomberg Billionaires Index.
- With inputs from Agencies
