Moody’s slashes rating outlook on seven Adani companies from stable to negative amid US bribery scandal

Leading rating agency Moody's announced on Tuesday, November 26, that it has cut the outlook on the ratings of seven Adani Group entities to 'negative' from 'stable', citing the US indictment of Chairman Gautam Adani and others on alleged bribery charges. According to news agency Reuters, the reduced ratings outlook will likely lower the pots-to-power conglomerate's access to funding.

Moody's affirmed the ratings on all seven entities of the multinational conglomerate -- Adani Ports and Special Economic Zone Ltd, two limited, restricted groups of Adani Green Energy Ltd (AGEL), Adani Transmission Step-One Ltd, Adani Transportation Restricted Group 1, Adani Electricity Mumbai Ltd and Adani International Container Terminal Pvt Ltd.

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Moody's cuts ratings outlook on Adani entities

"These rating actions follow the indictment of Adani Green Energy Ltd's chairman, Gautam Adani, and several senior management team members by the US Attorney's Office in a criminal case and the filing of charges by the US Securities and Exchange Commission (SEC) in a civil case," said Moody's.

"The change in the outlook on the seven Adani entities to negative considers the indictment of Adani and other senior Adani executives on bribery and other charges, which will likely weaken Adani Group's access to funding and increase its capital costs," said Moody's in its statement on Tuesday.

According to Reuters, Moody's rating action against Adani recognises the possibility of broader weaknesses in the governance structure across the rated Adani group entities and potential operational disruptions, including their capital spending plans, while legal proceedings are ongoing.

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"Although the allegations and the charges made by the US Attorney's Office and SEC pertain to AGEL's chairman and senior management team members, we believe they could have a broader credit impact on all rated issuers, given Gautam Adani's prominent role as chairman of each of the rated entities or their parent companies and the controlling shareholder," it said.

Moody's said the group's project finance entities are not exposed to refinancing risk and do not require any substantial capital investment. However, they remain exposed to potential governance weaknesses and risks that could arise from any negative findings in the ongoing legal proceedings.

Moody's also added that an upgrade of the ratings is unlikely in the near term, given the negative outlook on all seven of the group's issuers. It said it could change the rating outlook to stable if the legal proceedings against the Adani Group conclude clearly with no negative credit impact.

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"A stable outlook will also be predicated on the group maintaining appropriate financial metrics for the respective ratings, demonstrating its retained access to funding to meet growth initiatives and refinancing requirements, and strengthening its governance practices across the group entities," it added. 

"We could downgrade the ratings of the group entities if the legal proceedings lead to a material disruption to their operations or access to capital. A downgrade is also likely if the group cannot address or rectify governance issues associated with the ongoing legal proceedings".

US bribery indictment scandal against Gautam Adani

Gautam Adani was allegedly indicted in New York, US, over his role in the multibillion-dollar bribery and fraud scheme. According to US authorities, the chairman of the ports-to-power conglomerate and seven other defendants, agreed to pay Indian officials over $250 million in bribes to obtain solar contracts.

Adani and his nephew Sagar are accused of orchestrating the scheme and misleading investors during a $750 million bond offering, which raised about $175 million from US investors. In the indictment unsealed by federal prosecutors in New York, Adani, 62, was charged with securities fraud, conspiracy to commit securities fraud, and wire fraud.

The charges include bribery of Indian government officials, securities and wire fraud, conspiracy to violate the US Foreign Corrupt Practices Act and obstruction of justice, false statements made in annual reports, and false statements made to the US government in relation to its investigation into the group.