Will the US indictment have ripple effects on Adani Group?

The multinational conglomerate dollar bond prices fell as calls for transparency rise

The latest charges in the US mark the second legal crisis for the Adani Group in less than two years. Reuters

The Adani Group's dollar bond prices fell to near a one-year low on Monday as US charges against Indian billionaire Gautam Adani over an alleged $250 million bribery scheme continue to rattle investors.

“Some global banks and financial institutions are considering temporarily halting supply of fresh credit to the group,” said Karan Rijhsinghani, director at Atom Privé Wealth.

French oil giant Total Energies, which has a 20 per cent stake in Adani Green Energy, on Monday paused any new investment into Adani Group amid the allegations.

"Until such time when the accusations against the Adani group individuals and their consequences have been clarified, TotalEnergies will not make any new financial contribution as part of its investments in the Adani group of companies," the company said in a statement.

Beyond the immediate fallout for the Adani Group, some analysts say the crisis could have a wider-reaching and longer term negative impact on India's markets if not quickly resolved.

The latest allegations mark the second legal crisis for the Adani Group, led by Mr Adani as chairman and founder, in less than two years. The conglomerate was previously embroiled in fraud allegations by a US short-seller last year.

The new US charges have “significant implications for the Adani Group and the broader Indian market”, says Sonam Srivastava, founder and fund manager at Wright Research.

The news of Mr Adani's indictment caused the conglomerate's stocks and bonds to plunge on Thursday, wiping almost $30 billion off the group's market value. The group, with a market capitalisation value of about $150 billion, has interests from ports and airports to energy.

On Monday, some of Adani's stocks, including its flagship Adani Enterprises, moved into the green, but the share price is still around a one-year low.

Ms Srivastava said that there has been an “immediate negative market reaction” due to exposure to the conglomerate in the banking and energy sectors in India.

US federal prosecutors have accused Mr Adani, one of the world's richest men, and other executives of promising to pay Indian government officials $250 million in bribes to secure solar energy contracts. Prosecutors say Mr Adani and others hid the alleged corruption practices and used these contracts to raise money from US investors.

An Adani Group statement denied the allegations, describing them as “baseless” and saying it would seek “all possible legal recourse”.

Adani Green Energy, the company at the centre of the allegations, also suddenly scrapped a $600 million bond sale on Thursday.

“This move reflects immediate financial repercussions, as the group faces growing challenges in accessing global capital markets amid heightened scrutiny,” says Narinder Wadhwa, managing director and chief executive of SKI Capital.

He says the Adani Group could pursue a settlement in the US for the bribery and fraud case, which “could stabilise investor sentiment but may still impose significant financial and reputational costs”.

This would mean that “future capital-raising efforts, especially internationally, could remain challenging”, he adds.

“The case highlights governance concerns in large conglomerates but also offers an opportunity to reinforce regulatory oversight,” says Mr Wadhwa. “Prompt resolution might reassure investors about India’s commitment to addressing corporate malpractices.”

The development is undoubtedly a major setback for the Adani Group, which had been on a long road to recovery after it was accused by US short-seller Hindenburg Research in January 2023 of stock manipulation, accounting fraud, and improper use of tax havens.

The Adani Group denied all the allegations, issuing a 400-page rebuttal in response, but the accusations resulted in a crisis for the conglomerate.

It resulted in $150 billion being wiped off the market value of its companies last year.

An inquiry by India's market regulator continues.

Manish Chowdhury, head of research at online broker StoxBox, remains optimistic that the Adani Group can navigate its way through the latest crisis.

“The magnitude of allegations and corporate governance issues [are] seemingly not comparable to the earlier Hindenburg allegations,” Mr Chowdhury says.

“While some analysts view the market reaction as a short-term response, the long-term outlook will depend on the legal proceedings' outcomes and the group's ability to restore investor confidence,” says Ms Srivastava.