Proxy advisory firms raise alarm on charges against Adani executives

'Allegations can have long-term impact on cost of borrowing'

Terming the charges of bribery by the United States’ (US’s) prosecutors against executives of the Adani group “detrimental” to its reputation, proxy advisory firms on Thursday said the allegations could have a long-term impact on the cost of borrowing and trust in regulatory processes.

 

On November 20, the US Department of Justice (DoJ) and Securities and Exchange Commission (SEC) accused Adani group Chairperson Gautam Adani, his nephew Sagar Adani, and several other executives of the conglomerate of a bribery scheme “orchestrated to enable two renewable energy companies to capitalize on a multi-billion-dollar solar energy project”.

 

Proxy advisory firms, which track corporate governance and advise investors, have taken serious note of the charges.

 

 

“Now that we are thinking about China+1 and we want to be this plus one to China, having trust in the regulator and financial system is important. It is not good for the economy if it dilutes the trust which investors and the players in the markets have. It will take away our ability to put the best foot forward. There will remain questions of trust in the system — both from investors and suppliers, buyers, and the entire value chain,” said Amit Tandon, founder and managing director, Institutional Investor Advisory Services (IiAS).

 

He said the conglomerate could have made clearer and timely disclosures.

 

“At the moment, the markets’ response has been that they were not aware of it,” added Tandon.

 

Shriram Subramanian, founder of InGovern Research Services, expects the group to face higher borrowing costs.

 

“This is a different dimension of allegations. For the first time the group is facing allegations of bribery and corruption from official bodies in the US. It means there will be larger implications for project-funding costs and reputation on the account of borrowing costs going up. The group will appeal in higher courts and take other legal recourse available, like a settlement process. It will try to protect its reputation,” he said.

 

Following the charges, there is concern on what steps agencies in India like the Enforcement Directorate (ED) or the Securities and Exchange Board of India (Sebi), the regulator, will take. Many legal experts are of the opinion that Sebi may not step in immediately.

 

The SEC, securities market regulator in the US, has called Adani Green’s statements on anti-corruption and anti-bribery efforts “materially false or misleading” in the light of the executives’ conduct.

 

“As far as the misleading statements are concerned, they were given during the fund raise in the US; it doesn’t fall within Sebi’s jurisdiction. However, there will be pressure on Sebi and the ED to do some investigation. It needs to be seen how the investigative agencies respond to the developments,” added Subramanian.

 

Another proxy advisory firm is expected to issue a statement on the allegations and charges within the next few days.

 

Moody’s Ratings echoed concern on the port-to-power conglomerate’s ability to access capital.

 

“The indictment of Adani Group’s chairman and other senior officials on bribery charges is credit negative for the group’s companies. Our main focus when assessing Adani Group is on the ability of the group’s companies to access capital to meet their liquidity requirements and on its governance practices,” the rating agency stated.

 

The statement followed Adani Green Energy’s decision to not proceed with the proposed dollar-denominated bond offers.

 

While the Adani group stocks tumbled on the BSE and National Stock Exchange, the impact was much wider with selloff in banking stocks and the broader market.   

HIT HARD? 

- Bribery charges credit negative for Adani group firms, says Moody’s Ratings

  - Allegations may affect economy if they dilute trust in the markets, say proxy advisers

  - Experts say the conglomerate could have made clearer and timely disclosures

  - Sebi may not step in immediately, opine legal experts