US charges renew governance questions at Adani firms: S&P

The indictment of Adani Group founder Gautam Adani by US prosecutors could renew questions about the energy ports conglomerate’s governance practices and damage its reputation, S&P Global Ratings said on Friday.

US prosecutors accused Adani and seven others, including his nephew Sagar, of agreeing to pay about $265 million in bribes to Indian government officials to secure favorable terms for a solar power supply contract. Adani Group denied all the allegations, calling them “baseless” and said it would pursue “all possible legal avenues”.

“The allegations could renew questions about the group’s governance practices and damage its reputation. We will watch for any signs of weaker access to funding or concerns from existing lenders — which could be evidenced by lower funding limits, non-renewal of facilities, or significantly higher credit spreads,” S&P Ratings said in a note.

After news of the indictment broke, share and bond prices in Adani group companies fell sharply. The group canceled a completed $600 million bond sale.

That indictment is independent of, but follows, a report by short sellers last year that hit share and bond prices in the group, although they have since recovered. The group denied the allegations and said they were baseless.

The group needs regular access to both equity and debt markets given its big growth plans, in addition to regular refinancing.

“We believe that domestic banks, as well as some international banks and bond market investors, view the Adani entities as a group and could set group limits on their exposure. This may affect the funding of the assessed entities. We note that the rated entities do not have immediate and lump-sum debt maturities,” the rating agency said. “If allegations of illegal activities or misleading statements prove true, we could rate the group’s governance more negatively.”

Separately, research firm CreditSights said the refinancing of Adani Group’s green energy business is the biggest near-term concern. “Funding channels will inevitably tighten within the Adani Group, with lenders likely to reduce or limit group-wide exposure.”

Concerns are greatest for Adani Green Energy Ltd “given that it has the weakest liquidity and credit fundamentals,” it said, pointing to about $2 billion in short-term debt, mostly in the form of project loans at the conglomerate’s green energy unit.

S&P Global Ratings on Friday revised to negative the credit outlook for several Adani Group entities, citing issues related to access to finance and funding costs. “A US indictment of three board members of an unrated Adani group entity could affect investor confidence in other Adani group entities (as the founder sits on the board of several entities within the group), potentially affects their access to financing and increases financing costs. ,” S&P said.

US prosecutors allege Adani and others were involved in a $265 million bribery scheme that violated the anti-bribery compliance policy by misrepresenting investors in an offshore bond.

“In our view, this could raise further questions about the management and governance of the various entities of the Adani group. The indictment is independent of, but follows, a report by the short seller that led to an investigation by the Supreme Court of India and the Capital Markets Regulator of India,” S&P said. Stating that because of the potential impact on the wider Adani group, S&P said it has revised down the outlook on Adani Electricity Mumbai Ltd (Adani Electricity) and Adani Ports and Special Economic Zone Ltd (Adani Ports) to negative. “We have also affirmed our ‘BBB-‘ ratings on these entities.”

Project finance entity Adani Green Energy Ltd Restricted Group 2 (AGEL RG2) is a subsidiary of Adani Green Energy Limited (AGEL), the entity linked to the allegations.

“Although isolated from the parent company, we have revised to negative the outlook for AGEL RG2 and affirmed our ‘BB+’ issue rating,” the rating agency said. “The negative outlook on these entities indicates that, in our view, their cash flows could be materially affected if access to funding weakens, their funding costs increase significantly or allegations are proven, in addition to our assessment of governance and profiles their business. “

S&P said it believed the allegations, if proven, could have some impact on the company’s operations over time. “This could happen if there is a review of relations with government agencies that grant concessions and licenses, or with contractors and counterparties such as Solar Energy Corp of India (SECI), state distribution companies and joint venture partners in participation”, the press release states.