The Adani bribery case could upend Indian business and politics
IN THE COMING months, Mumbai will open a new airport and start to redevelop its largest slum. To the north, in the state of Gujarat, the first phase of what is billed as the world’s biggest copper smelter will become fully operational. Northwards still, near Pakistan’s border, power generation will start at a wind-solar plant that, when finished, will be the world’s largest green-energy site. Near India’s southern tip, meanwhile, a new port will open in Kerala with sufficient depth to create the country’s first global transshipment hub. And in nearby Sri Lanka, the port of Colombo will inaugurate a new terminal designed to compete with a Chinese-operated one next door.
Even these projects, all part of India’s Adani Group, barely convey the scale of a conglomerate so intertwined with government priorities that it is almost synonymous with Prime Minister Narendra Modi’s India. But they help to illustrate the potential fallout from the indictment that American prosecutors unveiled on November 20th against Gautam Adani, the company’s chairman, and seven others, including his nephew. The allegation of their involvement in a scheme to pay more than $250m in bribes to Indian officials does not just threaten the future of a national corporate champion. It casts doubts on India’s business environment that could deter foreign investors and hinder other Indian companies’ fund-raising abroad.
It is a political bombshell, too. The prime minister and Mr Adani both come from Gujarat and have worked closely together since Mr Modi was chief minister there from 2001 to 2014. Mr Modi now faces calls from the opposition for a parliamentary probe and Mr Adani’s arrest. The case against India’s second-richest man also raises new questions about judicial and regulatory independence under Mr Modi and could slow an infrastructure programme that has won him many votes. Furthermore, it could complicate the warming relationship with America that has been his signature diplomatic achievement.
Adani Group denies the charges from America’s Department of Justice (DoJ) and its Securities and Exchange Commission (SEC). Whatever the facts of the case, there is reason to expect that Donald Trump, once in office, will make the charges disappear or at least avoid putting pressure on India to co-operate, given his past chumminess with Mr Modi. Layer on to that Mr Adani’s plans to invest $10bn in America as well as the incoming administration’s anticipated focus on China, against which it sees India as a strategic partner.
Nonetheless, the charges strike at the heart of the Modi brand by undermining his claim to have made India a better place to do business. And they disrupt an entity that plays a central role in India’s economy, as its top importer of coal, its biggest private thermal-power producer and its largest non-state operator of ports and airports. The fallout could worsen if new information emerges or if other affected parties back out of Adani projects or take legal action against the company.
The charges come less than two years after what, at first, seemed to be another devastating threat to Adani Group, stemming from a report by a short-seller, Hindenburg Research, accusing the company of massive fraud. That initially wiped out more than $150bn in market value from its listed firms and sparked similar opposition calls for investigation. But the company ultimately recovered due in part to a lack of sanctions by India’s market regulator, and in part to improvements in financial performance that persuaded many investors Adani was a viable business, not a fraud.
The new American charges involve a single contract responsible for less than 10% of the business of just one of Adani Group’s 11 publicly traded affiliates, Adani Green Energy, according to the company. And none of those affiliates has been accused of wrongdoing: the charges target individuals rather than entities. Five of the eight individuals—none of them Adani employees—are accused of breaking America’s bribery law, the Foreign Corrupt Practices Act (FCPA). The other three, including Mr Adani and his nephew, are charged with securities and wire fraud in connection with the alleged scheme.
In many ways, though, the charges are far more serious than the broader Hindenburg allegations because of the influence of America’s regulators on other countries’ capital markets. The charges also extend American jurisdiction to one of India Inc’s most prominent figures, making it a diplomatic issue as well as a legal one. Whereas the SEC’s civil case can proceed without his presence in America, the DoJ’s criminal one requires him to be extradited. Any extradition request would have to go through India’s government and courts.
The likelihood of Mr Adani appearing in an American court also hinges on the incoming administration. Daniel Pulecio-Boek of Greenberg Traurig, a law firm, notes that the indictment’s timing, just months before Mr Trump takes office, may suggest federal prosecutors wanted to act before the new leadership takes over. A few months into his first term, Mr Trump asked dozens of lawyers responsible for prosecuting federal crimes to resign. A similar housecleaning is expected this time.
Mr Trump has also criticised the FCPA, which applies to any company that has issued securities in America (as Adani has), as “horrible”; the law, he argues, unfairly disadvantages American firms doing business overseas. Though enforcement actions continued at a good pace during his first term, Mr Trump’s current stance on prosecuting overseas malfeasance is unclear. A former federal prosecutor says that there is “virtually no chance” of Mr Adani being extradited.
Even so, the charges raise questions about Adani Group’s future. The company has tapped overseas banks and capital markets for half of its borrowing, making it sensitive to global opinion (see chart). Access to overseas markets is likely to be curtailed for the immediate future; a bond offering has already been withdrawn since the indictment, and Moody’s and Standard & Poor’s have issued negative rating outlooks on the existing bonds of several Adani companies.
Some of Adani Group’s international partners are spooked. TotalEnergies, a French oil giant, said it will halt new investments in the conglomerate until the full impact of the bribery charges becomes clear. Kenya’s president, William Ruto, said he was cancelling two deals with Adani companies, including one to operate an airport (though Adani says there had been no binding agreement, and the deals were already in doubt). Bangladesh is stepping up efforts to renegotiate an electricity-supply deal with Adani.
Adani Group says that $10bn allocated for foreign ventures may be curtailed. But it insists that all domestic projects will continue and that it has enough cash to refinance all debt for the coming year. It also says it can cover more than 70% of all projected investment from internally generated funds, with the rest available from domestic sources or those outside America and American influence.
So far, the damage to the company’s market value has been less than that seen after the Hindenburg allegations. Nor has the damage spread to the broader stockmarket, where Adani Group has limited sway due to its relatively low weighting in the main equity indices.
Politically, however, the impact has been explosive. When India’s parliament began its winter session on November 25th, opposition leaders demanded a parliamentary probe and debate. After the speaker (who is from the ruling Bharatiya Janata Party, or BJP) refused, opposition members disrupted proceedings, forcing the session to be suspended for two days. Rahul Gandhi of the Congress party, who leads the opposition in the lower house, had earlier accused Mr Modi of shielding Mr Adani from arrest and using him to enrich the BJP. The opposition is now also raising questions about regulatory failures and links between Mr Modi’s diplomacy and Adani Group’s international business.
Mr Modi has accused the opposition of “hooliganism”. Though he has not commented on the Adani case directly, BJP spokespeople have noted that all the Indian officials who were supposed to receive bribes according to the indictment were in states run by other parties, including Congress. The SEC identified a local official whom it said Mr Adani met in 2021 to discuss the bribes as the chief minister of the southern state of Andhra Pradesh. At the time, that was Jagan Mohan Reddy, whose party is not in the BJP’s coalition or the opposition alliance. He denies the allegation.
Modifying ambitions
That may help Mr Modi weather the crisis. But the disruption in parliament could delay important legislation, which was already facing more resistance following the BJP’s loss of its parliamentary majority in this year’s general election. The case also puts new pressure on India’s market regulators, who have been looking into Adani since the Hindenburg allegations. A report on 24 related investigations was expected to be released soon by the Securities and Exchange Board of India, the main market regulator. It is now reported to have opened a new probe into whether Adani misled investors by not revealing the American investigation.
Meanwhile, on the diplomatic front, there are signs that the Adani scandal could heighten tensions with the Biden administration in its final months. The two governments were already grappling with another DoJ indictment alleging that Indian officials were involved in the attempted murder of a Sikh activist in New York.
American officials have also recently pressed India to curb exports of dual-use items to Russia. A BJP spokesman suggested that the Adani indictment was timed to disrupt parliament’s winter session. “There are baseless, conspiracy-filled allegations being made against India from abroad,” he said. “We should assert that we will operate according to our own legal system, not theirs.” Much will depend now on how both governments decide to handle the case. Mr Adani and Mr Modi may yet survive the controversy, as they have done many others. But the damage to India’s image is already done. ■
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