Adani's reckoning: Sebi probes, political uproar, and foreign capital woes

Sebi may now launch fresh inquiries. Parliament will open to uproar, and Adanis' access to foreign capital will become impossible. The damage this time will be deeper and longer-lasting

In about two years, the Adani group has hit big international headlines thrice: First, with stories on its debt overhang; second, with the Hindenburg allegations of market manipulation and fraud; and now prosecution by the US Department of Justice, the Federal Bureau of Investigation, the Securities and Exchange Commission — the works. In between the big episodes, there were also some item numbers, like the Supreme Court-mandated inquiry and charges of conflict of interest against Securities and Exchange Board of India (Sebi) Chairperson Madhabi Puri Buch.

 

All this fouled the air for India’s fastest-growing conglomerate without creating either the imminence of criminal action, or jail for its key personnel, or an existential threat to its global ambitions. The latest development has introduced all three.

 

The US has issued warrants against Gautam Adani, his nephew Sagar, and others named in the indictment. Adani Green Energy has cancelled its $600-million (about Rs 5,064 crore) international bond issue, and Kenya has withdrawn from nearly $3 billion worth of joint ventures with the group. This denies the Adani group, an Indian conglomerate with more international hunger than any other, its biggest global venture after the acquisition of the humongous Carmichael coal mine in Queensland, Australia.

 

The group showed incredible resilience in recovering from earlier setbacks. Of course, the “system” wasn’t particularly hostile to it. The big Hindenburg attack sank its follow-on public offer (FPO) to raise Rs 20,000 crore. The markets hammered its stocks. At the time, we had framed it as part of the rites of passage for a still-evolving Indian capitalism. That’s why we had said the market had won, and it was up to Adani to decide whether he would lose or not.

 

We are back there now. The charges this time are much graver, especially as these come not from any “interested” market operator like a short-seller or whistleblower. We can argue over the jurisdiction— a substantive argument — but the fact remains that these charges are from a sovereign government. It’s not just any government. It is the most powerful nation, with the locus of global finance residing in its markets. Any quick damage control is unlikely. Conspiracy theories, such as this being part of the Biden administration’s project to muddy the waters in the two months before the Trump takeover, won’t change the fact that these cases are in court now.

 

As in our system, once cases are in court and chargesheets are filed, the process itself becomes the punishment. The Adanis are now exposed to it. There’s hope that Trump will come in and reverse all this. But, as the old wisdom goes, hope is not a plan. And in any case, even if Trump had such powers or intentions, it won’t be his first priority. If anything, he will first want to do something about cases against himself. This is an awful mess. Or, as we would say in the Hindi TV channels’ language, raita phail gaya hai.

 

Let’s go deeper into how this could play out from here. First, the Adanis are not about to be arrested — unless one of them, by some quirk of fate, gets caught in an awkward jurisdiction. This is irrespective of what pressure the US builds, or the demands by Rahul Gandhi. There are many good reasons for this, such as:

 

> A US warrant is not binding on India. The US certainly doesn’t have the kind of relationship with India that it has with the Czech Republic, which arrested Nikhil Gupta immediately on its say-so. Those deals are mutual, and if that were the case, Gurpatwant Singh Pannun would have been under arrest for a long time. There is no way any Indian government, even if it was the Congress party’s, would execute an American warrant.

 

Nor would the Americans in a similar situation. Because, hello, does the name Warren Anderson ring a bell? For the post-Google generation, he was the big boss of Union Carbide, charged and wanted in India for the mass slaughter in Bhopal. That, presumably, would be a bigger offence than market manipulation in another country (India) and non-disclosure in yours (the US). Anderson lived a long and smug life in the US until he died at 92. In the meantime, he also sold his company to Dow Chemical, cashing out his own equity and also creating a corporate veil to protect both Carbide and Dow. The murderous miasma of Bhopal gas clouds any arrest on a US warrant, or extradition.

 

In any case, as the old logic goes, if your kid beats up the neighbours’, you do not let that kid’s parents beat up yours. You call yours in and hand out the punishment you want.

 

> Even if the Congress were indeed in government here and Rahul the Prime Minister, it wouldn’t be possible to make any arrests only based on the US charges. We would need charges of our own. What could they be? The US charges open the door for Sebi to take much action, even impose bans or carry out seizures. For arrest, however, you’d need a criminal case.

 

India does not have the equivalent of the American Foreign Corrupt Practices Act, which, by the way, Trump detests as detrimental to US business interests. A serious crime in India would be any evidence of money having been passed to a government or public figure. That would invoke the wrath of the Prevention of Corruption Act.

 

So far, the Americans haven’t shown any money or money trail. If they do so going ahead, the picture will change dramatically, even if the man who’ll be first in the firing line then, Y S Jagan Mohan Reddy, is half an NDA (National Democratic Alliance) ally. The awkwardness of that situation is evidenced by the silence of Andhra Chief Minister Chandrababu Naidu. Does he go after his sworn enemy and embarrass the Bharatiya Janata Party (BJP), the big brother in the NDA? A money trail, just the smell of real money, will change the picture. We also need to note that the US, so far, has not sought any jail sentencing, but there can be superseding indictments, or what we call supplementary chargesheets.

 

> What’s likely to happen, then? It is possible that Sebi will now launch a new series of inquiries based on the charges of non-disclosure of these ongoing investigations to the regulators and bourses in India. Second, it’s unlikely the group will continue to acquire strategic assets overseas. And third, its asset acquisition in India will also take a break.

 

> And finally, what will surely happen, or has already come to pass. First, Parliament will open to an almighty uproar by a rejuvenated Opposition, irrespective of the results from Maharashtra and Jharkhand. Second, the Adanis’ access to any foreign capital will become impossible, barring a possible Saudi-style exception. The Chinese have just shown the world how to sidestep the US by raising a $2-billion sovereign bond there.

 

Last and most important, punishment from the markets will continue. The damage this time will be deep and longer-lasting. Already on day one, the group lost Rs 2.6 trillion in market cap. The next day, while some Adani stocks showed signs of recovery in early trading, most closed negatively, with losses on day 2 hitting Rs 35,000 crore.

 

Which brings us back to where we started with that February 23, 2023, National Interest — that however wayward it may be, the market is still the fairest monarch of all. Courts, cops, agencies —we’ll watch. Meanwhile, we can phrase the larger argument simply as: May you ever be so high, the market is above you.

 

By special arrangement with ThePrint