S&P lowers outlook on three Adani units after U.S. indictment of founder

The Adani Group said it would seek all possible legal measures against the indictment.
| Photo Credit: VIJAY SONEJI

S&P Global Ratings lowered its outlook on three Adani Group entities to negative from stable on Friday (November 22, 2024), citing risks to funding access following a U.S. indictment of the conglomerate’s billionaire founder, Gautam Adani, on bribery charges.

Mr. Adani and seven other people, including his nephew Sagar, were indicted on Thursday (November 21, 2024) for fraud by U.S. prosecutors for their alleged roles in a $265 million scheme to bribe Indian officials to secure power-supply deals.

Adani Group has said the accusations levelled by U.S. federal prosecutors, as well as those by the U.S. Securities and Exchange Commission in a parallel civil case, are “baseless and denied” and that it will seek “all possible legal recourse.”

The U.S. indictment could affect investor confidence in other Adani Group entities, as the founder sits on the boards of other companies within the group, potentially impairing their access to funding and increasing their funding costs, S&P said in a note. The chairman of AGEL, one of the board members under investigation, is the founding promoter and is on the board of multiple Adani group entities. The presence of Adani family members among the group’s boards of directors and senior management (including CEOs) means they can significantly influence the business strategy, growth plans, financial policies, reporting, and disclosures of operating entities. Different group companies share some of the same managers among the treasury, finance, and technical divisions, the S&P added.

This could further raise questions regarding the management and governance of various Adani group entities, S&P said.

The negative outlook on these entities indicates that their cash flows could be materially affected if their funding access weakens, their funding costs rise significantly, or the allegations are proven, in addition to our assessment of their governance and business profiles, S&P said.

“The group will need regular access to both equity and debt markets given its large growth plans, in addition to its regular refinancing. We believe domestic, as well as some international banks and bond market investors, look at Adani entities as a group, and could set group limits on their exposure,” S&P said.

Bonds and most stocks of the Adani Group dropped for a second session on Friday after the indictment.

If allegations of illegal activities or misleading statements prove true, the group’s governance would be rated more negatively, the group added.

In addition, S&P said it believes that if the allegations are proven, it could have some bearing on the company’s operations over time.