Gautam Adani's indictment can act as major roadblock for the conglomerate to win back institutional investors trust
The year 2024 was going well for the Adani Group. Post the Hindenburg hit, most of the companies made a quick recovery at the stock markets and recouped the losses in a short span of time. The conglomerate was on a funding spree in the equity and bond markets to shore up capital for further expansion.
However, the indictment in the United States could act as a big roadblock for the ports-to-power conglomerate. Gautam Adani, Chairperson of Adani Group, Sagar Adani, Executive Director at Adani Green Energy, and six others have been indicted by prosecutors in the United States court.
The major allegation is of bribing Indian state government officials for solar power projects. As per the documents, the accused conspired to bribe a total of Rs 2,029 crore to different officials.
For the group which was able to ward off the short-seller attack easily, the indictment could be a serious reputational hit. In a statement, the group has denied the allegations and said that it will seek legal recourse. The statement read, “The allegations made by the US Department of Justice and the US Securities and Exchange Commission against directors of Adani Green are baseless and denied.”
The task at hand for the group is winning the trust of institutional investors who have stayed away from increasing their stakes in the company. As per the latest shareholding data, foreign institutional investors have cut their stakes in four out of the top five listed firms of the conglomerate. The reaction of the markets on Thursday suggested that the latest episode in the corporate governance saga of Adani Group will have major consequences for its shareholders.
The Expansion Problem
What would worry the investors is the fact that it is Adani’s green energy business which has been caught in the crossfire. As per an analysis published by S&P Global Ratings last month, Indian conglomerates are set for a $800 billion investment push in the next decade. Of this, $300 billion would go into new business areas.
The forecast suggested that new energy businesses will see most of the investments as part of the major push. Leading the pack, the ratings agency said in its report that Adani Group will invest $80 billion in new energy to further its expansion. Moreover, the report highlighted that the business groups will have to tap external markets for capital to finance this mega investment push into newer areas.
It is here that things can become complicated for Adani. Dollar denominated bonds are one of the most preferred ways to raise huge amounts of capital. As the immediate consequence of the indictment, Adani Green was forced to cancel a $600 million bond deal.
The cancellation of the bond reflects a damp outlook in the bond market, which just eight months ago saw robust demand for one of the issuances. In March, reports said that Adani Green’s $409 billion bond saw subscriptions request worth $3 billion. Since then, the company has announced several expansions and fundraising plans.
Notably, Adani Green became the first Indian company to cross 10GW in green energy capacity in April this year.
Going forward, it is likely the group will face heat in its fundraising plans from institutional investors due to the dark clouds of the US investigation. GQG Partners, which was one of the first foreign investors to pump money into the group post-Hindenburg report, has said it is reviewing its portfolio. Its stock on the Australian stock exchange tumbled by close to 20 per cent due to the concerns of investors.
Ratings agency Moody’s has also come out with a statement which will worry the investors of Adani Group. Moody’s said in a statement that the charges are credit-negative for the group. “Our main focus when assessing Adani Group is on the ability of the group’s companies to access capital to meet their liquidity requirements and on its governance practices,” the statement said.
Notably, Adani Group earmarked Rs 80,000 crore for capital expenditure in the financial year 2025 to expand offerings in new energy, and airports, among other business segments. Investors will keep an eye on how the bid to expand will pan out now.