US bribery taint melts Adani stocks; Kenya cancels airport, energy deals

Adani, others in $265 mn bribery case

Dawn broke on Thursday with news coming in that United States authorities had charged industrialist Gautam Adani, his nephew Sagar, and some of his associates with defrauding American investors and promising and paying bribes worth $265 million to government officials in India in return for solar energy contracts.

 

As the day progressed, the Adani group denied the charges and termed them baseless, but cancelled a $600 million bond issue, saw the shares of its companies plunge between 9 and 23 per cent, and lost Rs 2.2 trillion in market capitalisation. The BSE Sensex ended 0.54 per cent below Tuesday’s close while Vedanta Resources deferred its $1.2 billion dollar bond issue.

 

Evening brought word that Kenyan President William Ruto had ordered the cancellation of a process to hand control of the country’s main airport to the Adani group and also junked a $736-million public-private partnership deal with an Adani group firm to construct power transmission lines.

 

Thursday’s developments push the Adani group into fresh turmoil not long after it had appeared to recover from the allegations levied by short seller Hindenburg Research in January last year, which had triggered a $150 billion erosion in the value of the group stocks.

 

This time, some of the charges are criminal in nature and have given rise to fears that the group will face a stiff challenge in raising money in the US in the near future and maybe in other markets that take their cues from the US. Rating agency Moody’s said the US government charges were credit-negative for the group’s firms. 

 

Proxy advisory firms said the reputational damage could lead to higher borrowing costs.   

 

“It is the first time the group is facing official allegations of bribery and corruption in the US. The Adani Group will definitely appeal in the higher courts and take other legal recourse available, like settlement process. The group will try to protect its reputation, but in the meantime the project borrowing costs will go up,” said Shriram Subramanian, founder of InGovern Research Services.

 

The criminal charges have come from the US Department of Justice (DoJ), which has accused Adani and his associates of paying and promising bribes, conspiracy to commit securities and wire fraud, and attempts to “obtain funds from the US investors and global financial institutions on the basis of false and misleading statements”. The five-count criminal case also charges Vneet Jaain of Adani Energy and former executives of renewable energy company Azure Power, including Ranjit Gupta and Rupesh Agarwal, and Cyril Cabanes, Saurabh Agarwal, and Deepak Malhotra, who are former employees of a Canadian institutional investor.

 

In parallel, the US Securities Commission (SEC), the markets regulator, has accused Adani and his nephew Sagar, who heads Adani Green Energy of orchestrating a bribery scheme along with Cyril Cabanes of Azure Power.

 

Azure Power said it was cooperating with US authorities on the investigation and clarified that the directors and officers named in the indictment had been separated from the company for more than a year. “Azure is committed to operating with strong governance standards,” news agency Bloomberg quoted Azure as saying.

 

Giving details of the alleged bribes, the DoJ said that between 2020 and 2024, the defendants agreed to pay more than $265 million in bribes to obtain solar energy supply contracts with the Indian government, which were projected to generate more than $2 billion in profits after tax over 20 years.

 

In a separate statement, by the SEC said the Indian government’s Solar Energy Corporation of India (SECI) in June 2019 invited a request for selection (RFS) for construction of a solar cell module manufacturing unit, which was to be linked with SECI arranging a power purchase agreement (PPA) to buy the power generated from the winning bidders. Six months later, in January 2020, Azure Power, a company which had several international investors including Canadian fund CDPQ, announced it won a portion of the RFS. Adani Green made a similar announcement of winning the order in June.

 

Though the PPAs with the state electricity boards were expected to be signed within 90 days of the letter of intent, they were delayed and finalised more than 18 months later.

 

Between late 2020 and early 2021, the SEC said, Sagar Adani allegedly communicated regularly with others, including Azure executives, about the need to pressure and “incentivize” Indian states to sign power purchase agreements. In June 2021, Azure Power said its potential profits related to the Manufacturing Linked Projects were at risk as there had not been adequate response from the electricity distribution companies for SECI to be able to sign the PSA.

 

Between July 2021 and February 2022, the US prosecutors alleged, following the promise of bribes to Indian government officials, the electricity distribution companies of Odisha, Jammu and Kashmir, Tamil Nadu, Chhattisgarh and Andhra Pradesh signed PSAs.

 

‘Baseless and denied’

 

The allegations made by the US Depart-ment of Justice and the US Securities and Exchange Commission against directors of Adani Green are baseless and denied. As stated by the US Department of Justice itself, “the charges in the indictment are allegations and the defendants are presumed innocent unless and until proven guilty”. All possible legal recourse will be sought. The group has always upheld and is steadfastly committed to maintaining the highest standards of governance, transparency and regulatory compliance across all jurisdictions of its operations. We assure our stakeholders, partners and emplo-yees that we are a law-abiding organ-isation, fully compliant with all laws”. 

 

Spoksperson, Adani group  

   

CASE FILE

 

A timeline of key events according to SEC submission to US District Court:

 

Jun 2019: Solar Energy Corporation of India (SECI) issues a request for selection (RFS) for bidders to set a solar cell/module unit; in lieu of SECI arranged power-sale agreement (PSAs) as incentive.

 

Jan 2020 Azure Power wins a portion of RFS; Adani Green makes a similar announcement in June 

 

Late 2020-early 2021 Sagar Adani allegedly communicated with Azure executives and others about “incentivising” Indian states

 

Jun 2021 Azure warned potential profits from manufacturing-linked projects were at risk due to lack of response from discoms

 

Jul 2021-Feb 2022 After bribe promises to officials, discoms in Odisha, Andhra Pradesh (AP), J&K,  Chhattisgarh, Tamil Nadu signed PSAs

 

Dec 2021 Adani Green announces a 5 Gw PPA, world’s largest, with SECI for manufacturing linked projects

 

Apr-Jun 2022 Gautam Adani, Sagar Adani, and Vneet Jaain meet Azure executives. SEC alleges Gautam Adani suggested Azure pay its share of bribes by ceding 2.3 Gw of power rights to Adani Green

 

Dec 2022-Feb 2023 Azure seeks to withdraw from the AP portion of manufacturing-linked projects, ceding 2.3 Gw rights to Adani Green

 

Dec 2023 Adani Green signed a PPA with SECI for most of the 2.3 Gw capacity ceded by Azure

 

(with inputs from Khushboo Tiwari)