Red alert on the Adani front
THE Adani Group, one of India’s most influential and high-profile conglomerates, finds itself in the crosshairs of an international controversy. In a damning indictment, the US Department of Justice (Eastern District, New York) and the Securities and Exchange Commission (SEC) have, in a joint action, filed civil and criminal charges, accusing the group of bribery, fraud, obstruction of justice and violations under the stringent Foreign Corrupt Practices Act (FCPA).
This scandal has laid bare challenges that India can no longer afford to ignore if it wants to maintain its position as an attractive investment destination and be seen as an economic powerhouse.
The alleged bribery scheme centres on a $6-billion contract awarded to Adani Green Energy Ltd by Solar Energy Corporation of India (SECI) in 2020. This was touted as a game-changer for India’s renewable energy ambitions. However, the indictment claims that the project faced viability issues due to a lack of interest among state electricity utilities to buy the expensive power it generated. The group allegedly resorted to bribing officials of various state electricity utilities (Andhra Pradesh, Odisha, Tamil Nadu, Chhattisgarh and Jammu & Kashmir) to buy power from the SECI. In doing so, it violated the declarations made under the FCPA and indulged in a series of misrepresentations to cover its tracks and also attempted to derail the investigation.
The 54-page indictment by the US Justice Department details how and why the FCPA is applicable in this case and directly links Gautam Adani, his nephew Sagar Adani and key officials of the group in the payment of over Rs 2,000 crore as bribes in India. Arrest warrants against Gautam and Sagar have also been handed over to foreign law enforcement agencies. A statement from the White House that it is aware of the action signifies the seriousness of the matter.
Although the Adani Group has denied the allegations, terming them baseless, it is less credible this time because of the revelations in the indictment by the Justice Department. The scandal has sent shockwaves across global markets and the impact on the group has been on multiple levels. It has also raised critical questions about how Indian businesses are run, the role of our market regulator and the extent to which political clout shapes economic outcomes.
Stock prices of all Adani Group companies fell, while some key group energy stocks crashed by 10-22 per cent and fell further on November 21, when the broader market went up ferociously. The impact on business has also been significant. Another immediate fallout was that Adani Green Energy Ltd had to postpone a $600-million bond offering. GQG Partners, an investment management company listed in Australia, which made significant investments in the group even after the Hindenburg Research disclosures, informed the stock exchange that it was reviewing the situation with regard to its portfolios after the US action.
The next-level impact will be seen in the group’s global businesses, which have attracted controversy in many countries. Kenyan President William Ruto was the first to respond by cancelling airport and energy deals of over $2.5 billion. The airport project was the subject of enormous controversy, public protests, senate hearings and litigation. We are likely to see similar action in other jurisdictions where Adani projects have attracted protests or controversy.
In 2022, there were allegations that the Indian government pressured Sri Lanka over handing a renewable energy project to the Adani Group. The Adani power project which supplies 10 per cent of the electricity to Bangladesh is already mired in controversy, and the group has been cutting power supply in a bid to recover payments. The Bangladesh High Court has ordered a high-level probe into the power deal with the group. The group has also been facing massive public protests over its coal mines in Australia.
Given the group’s enormous and open influence over the NDA government and proximity to the Prime Minister himself, this case will not be viewed as just another instance of corporate wrongdoing. As the legal process unfolds, it will not only test the group but also India’s broader corporate governance and regulatory framework. Under US laws, the charges themselves can be settled by negotiating a payment, without admitting or denying guilt, but it will be a hard bargain with many geopolitical implications in view of the global spread of the Adani empire and influence over India’s ruling establishment.
The US action calls into question our capital market regulation. It is embarrassing that the Securities and Exchange Board of India (SEBI) has drawn a blank in its investigations despite enormous public scrutiny and an unprecedented Supreme Court-appointed committee. It is also hard to believe that despite being a member of the International Organisation of Securities Commissions and having a bilateral agreement with the US SEC under an MoU on cooperation, consultation and technical assistance dating back to 1998, SEBI reportedly sought information from the US only after the SEC and the Justice Department went public with their action.
Logically, the US action ought to open a broad, multi-agency investigation in India over diverse charges levelled against it over its corporate acquisitions across sectors and states. A failure to do so will lead to long-term reputational damage to India’s flawed business ecosystem. Going forward, companies seeking global capital are bound to face greater scrutiny and higher scepticism.
From weak regulatory oversight to the blurring of lines between corporate and political interests across political parties, this scandal has laid bare challenges that India can no longer afford to ignore if it wants to maintain its position as an attractive investment destination and be seen as an economic powerhouse.
