In the wake of bribery charges levelled by US authorities against key executives of the Adani Group, ratings agency Fitch has placed several bonds issued by the conglomerate on “watch negative.” The development signals a potential downgrade that could significantly impact the pricing of Adani’s extensive debt portfolio.
Adani Energy Solutions Ltd, Adani Electricity Mumbai, and select rupee and dollar bonds from Adani Ports and Special Economic Zone are under scrutiny. Fitch has also downgraded ratings on four senior unsecured dollar bonds of Adani subsidiaries from stable to negative.
Impact on Adani Group’s Financial Stability
A “watch negative” status suggests an increased likelihood of a ratings downgrade, raising concerns over the conglomerate’s access to financing and its ability to manage debt obligations. Fitch noted it would closely monitor the US investigation, paying particular attention to any potential deterioration in Adani’s funding access, the ability to roll over credit lines, and the likelihood of increased credit spreads.
The agency highlighted that adverse developments could heighten refinancing risks, potentially jeopardising Adani’s financial health in the near to medium term.
Broader Repercussions
S&P Global Ratings also weighed in, issuing a downgrade warning for Adani Ports, Adani Green Energy, and Adani Electricity in response to the US indictments.
Adding to the challenges, French energy giant TotalEnergies announced it would halt financial contributions to its joint investments with Adani Group, citing concerns raised by the charges.
The allegations, filed by US prosecutors, accuse Gautam Adani, the group’s founder, his nephew Sagar Adani, and six others of orchestrating a $265 million bribery scheme. The alleged scheme was aimed at securing lucrative power supply contracts, including the development of India’s largest solar power plant.
The US Securities and Exchange Commission (SEC) has filed a parallel civil case against the group, claiming that the contracts would yield $2 billion in profits over 20 years.
Adani Group Denies Allegations
The Adani Group has categorically denied the accusations, dismissing them as “baseless” and vowing to pursue all legal remedies. In a statement, the conglomerate emphasised its commitment to compliance and governance, arguing that the charges are without merit.
Despite the group’s rebuttal, the indictment has raised significant concerns about its corporate governance and operational transparency.
Bond Market Reaction
Following three days of substantial declines, Adani dollar bonds stabilised on Tuesday, with prices for some Adani Ports and Special Economic Zone debts rising slightly. Bonds maturing between 2027 and 2041 saw an uptick of half a cent to 1.5 cents on the dollar. However, these securities had already experienced a steep decline of 8 to 12 cents since news of the indictments broke.
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Morningstar Sustainalytics, a leading ESG ratings provider, announced it would reassess the environmental, social, and governance (ESG) risks associated with Adani Green Energy. Hortense Bioy, head of sustainable investing research at Morningstar, remarked, “No business, green or brown, can represent a good investment opportunity without robust governance policies and practices.”
Investor Exposure
Japan’s SBI Asset Management disclosed the extent of its exposure to Adani Group entities within four of its funds. The SBI/UTI India Infrastructure Equity Fund holds the highest exposure at 2.55%, with the other three funds ranging between 0.21% and 2.08%. The disclosure underscores the growing unease among institutional investors regarding their Adani-related holdings.
Governance in the Spotlight
The allegations have reignited debates about governance standards within the Adani Group, particularly as the conglomerate has sought to position itself as a global leader in green energy and infrastructure. The group’s rapid growth and ambitious investments in renewable energy projects have often been accompanied by scrutiny over its governance practices and debt management strategies.
Uncertain Future
The US charges pose a formidable challenge to the Adani Group’s reputation and financial stability. With key investors and ratings agencies reassessing their positions, the coming weeks will be critical in determining the conglomerate’s ability to navigate this crisis.
For now, the Adani Group faces mounting pressure to restore investor confidence and demonstrate that its governance and operational practices meet international standards.
