Adani indictment rocks equities and bonds alike

The turbulence followed an announcement from the US Attorney’s Office in New York in the early hours of Thursday (India time), indicting group chairman Gautam Adani and seven senior executives. The allegations? A $250 million (around ₹2,110 crore) bribery scheme aimed at influencing Indian officials to secure favourable solar power contracts for Adani Green Energy Ltd and New Delhi-based Azure Power Global Ltd.

The Adani group dismissed the allegations. “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," it said in a statement. “All possible legal recourse will be sought."

But the news triggered a selloff in the Indian markets. On Thursday, the Nifty 50 of the National Stock Exchange (NSE) hit an over-five-month low at 23,349.90 points. The benchmark closed 0.7% lower at 23,349.90 points. The BSE Sensex fell 0.5% to close at a five-month low of 77,155.79 points.

Adani stocks bore the brunt of the selling. Adani Enterprises Ltd and Adani Green Energy Ltd led the plunge, tumbling 23% and 19%, respectively. Other group companies weren’t spared either as shares of ACC Ltd, Adani Ports and Special Economic Zone Ltd (APSEZ), Adani Power Ltd, Ambuja Cements Ltd, Adani Total Gas Ltd, Adani Energy Solutions Ltd, Sanghi Industries Ltd and Adani Wilmar Ltd shed between 8% and 13% on the NSE. Adani group companies eroded investor wealth, as measured by market capitalization, by more than ₹2.24 trillion.

Also read | Adani bribery case: whistleblowers, WhatsApp texts, and ‘incentives’

The selloff was a reminder of the slide that followed the Hindenburg Research report of 24 January 2023, which wiped out over ₹12.38 trillion from the group’s aggregate market capitalization by 27 February 2023. However, the sentiment began to improve in the subsequent months, leading to a remarkable recovery, with the conglomerate regaining ₹12.61 trillion in market capitalization by 3 June 2024.

The impact of the latest US indictment extended beyond equities on Thursday, as the group’s dollar bonds fell. The price of APSEZ’s bond maturing on 4 August 2027 fell 3.7 cents; the APSEZ note maturing on 2 February 2031 was down 5.5 cents; and Adani Electricity Mumbai Ltd’s bond maturing on 22 July 2031 fell 6.4 cents, according to Bloomberg data.

“Such allegations are not new to the Adani group, which has navigated similar challenges in the past," said Kranthi Bathini, director of equity strategy at WealthMills Securities. “However, this time the stakes are higher, as the charges come not from a random source but through a foreign court, making it crucial for investors to monitor the developments closely."

Bathini emphasized that the group’s robust, long-term businesses are well-positioned to generate cash flows over time, which could appeal to selective investors. “These are high-beta stocks, meaning they come with significant risk and volatility. Only investors with a high-risk appetite should consider investing in these stocks," he advised.

This indictment of Adani, according to market expert Ajay Bagga, is unlikely to dampen investor sentiment for far too long. He told Mint, “We must understand that a grand jury has passed an approval to proceed with the indictment. That does not mean that a verdict has been pronounced." Bagga said it will be a subject matter before a trial jury, which has to return a unanimous verdict of guilt. Western media and some political sections are already jumping to pronounce a guilty verdict in a sub-judice matter, he said.

Also read | Mint Explainer: The US indictment of Gautam Adani

Shankar Sharma, founder of wealth management firm GQuant Investech, said the fallout from the US court ruling will put “more pressure on our markets because Adani group companies are index constituents with significant weighting thereon." But, he said, the impact on the group’s fundraising needs to be seen.

Reuters reported on Thursday that hours before the US prosecutors charged Gautam Adani and others on bribery allegations, the firm sold a 20-year green bond in the US investment-grade market. The issue was oversubscribed three times. But following the allegations, the issue was scrapped, reported Reuters.

In the wake of the recent news, some other corporates have chosen to delay their fundraising plans too. Vedanta Resources, controlled by Indian billionaire Anil Agarwal, is reassessing the timing of a potential sale of dollar bonds after the US indictment of Gautam Adani fuelled market volatility, Bloomberg reported.

Rating agency Moody’s said in a statement that the indictment is credit negative for the Adani companies. “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," it said in a statement issued on Thursday.

According to bond market experts, the indictment will adversely impact future debt raise plans of the group.

“While the group has withdrawn its $600 million dollar bond issue, the recent news will also impact their $2 billion refinancing plans," said Hemant Mishr, chief investment officer of S Cube Capital, a Singapore-based fund manager.

On a broader level, Mishr said, it will impact the sentiment, and investors will demand a higher risk premium for low-rated companies. The risk premium is the additional return that an investor demands as compared to a sovereign security.

Last week, The Economic Times reported citing people close to the development that Adani Green Energy planned to raise around $2 billion in the next few months in multiple tranches through international bonds and loans.

Also read | Kenya cancels proposed power transmission deal with Adani Group following US bribery indictment scandal

Even GQG Partners, the Australia-listed fund manager and a major shareholder in Adani group stocks, weighed in: “We are monitoring the charges brought today by the US Attorney’s Office for the Eastern District of New York and the US Securities and Exchange Commission against Gautam Adani and certain other Adani Group executives and companies. Our team is reviewing the emerging details and determining what, if any, actions for our portfolios are appropriate."

In Australia, shares of GQG Partners Inc plunged 19% on Thursday.

Meanwhile, share prices of Indian listed financiers like State Bank of India, REC Ltd, Power Finance Corp. Ltd, Punjab National Bank and Bank of Baroda slumped 3-5% on Thursday.

The Adani group has ambitious green energy plans. In June, Adani Green Energy, the renewable power business of the group, had raised its FY30 target from 45GW to 50GW. In FY24, it added 2.8GW, 15% of India’s total renewable capacity addition, according to its annual report.

Gopika Gopakumar, Khushi Malhotra, Ram Sahgal and Shayan Ghosh contributed to this story.