High costs: US charges to cause reputational damage for Adani and India

The Adani group is in trouble again. This time, however, accusations against it are being levelled by a source more reliable than the activist short-sellers at Hindenburg Research, who had caused tremors in the market with a report last year on the group’s finances. The United States (US) federal prosecutor for the Eastern District of New York, one of those that specialise in examining federal white-collar crimes, has charged group Chairman Gautam Adani and some other executives, including Mr Adani’s nephew, with bribing government officials in India to secure contracts. The investigation was conducted by the Federal Bureau of Investigation and the charges, if proved, would be a violation of US law because even bribes in other countries are seen as defrauding US investors. The accusations also include charges of misleading investigative agencies and deleting electronic evidence. A parallel case was filed by the Securities and Exchange Commission (SEC), the US’ market regulator. The group has denied the charges. Nevertheless, its group companies lost more than Rs 2 trillion in market value before they rebounded somewhat the next day.

 

The group might well prevail in court. Indeed, it is an open question whether the prosecution of this case will be maintained once Donald Trump takes over as President in January, and makes changes to the Department of Justice and to various prosecutorial posts. Yet, for as long as the process lasts, there will be a cost to be paid by the Adani group collectively and by its individual companies. It has already had to cancel a $600 million bond sale. Some of its ventures will now no longer see the light of day. Its $1.85 billion plan to redevelop Nairobi’s Jomo Kenyatta International Airport and run it for three decades had long been the subject of protests in Kenya. The news of the case was the spark for this deal to be formally revoked. President William Ruto took the opportunity of a “state of the nation” address to the Kenyan Parliament to declare that “new information provided by our investigative agencies and partner nations” had led to the partnership being terminated. A $736 million deal to upgrade power lines was also ended by Mr Ruto, although that contract had already been suspended by a local court. Given the wide-ranging interests of the group, more such fallout may emerge in the coming weeks.

 

For a group that works in sectors where the ability to raise money and minimise political risk is essential, such news can hardly be easy to shrug off. The group will have to work hard to clear its name, and to ensure that existing and profitable projects are not harmed by the fallout. It must transparently cooperate with the court processes. This is also a matter of the national interest in India. The reputation damage extends beyond one group. Vedanta Resources too has paused a planned dollar-bond sale in response to volatility in the markets. Indian authorities must therefore recognise that it is essential that they be seen to be sharing information in a timely manner with their US counterparts, so as to restore faith in the Indian system and preserve companies’ ability to raise money globally. In this regard, the Securities and Exchange Board of India and Indian stock exchanges must ensure that there is no disclosure gap in group companies. Investigating agencies of the Union government and the states concerned must also probe the matter because the alleged bribery happened in India. Irrespective of the outcome of the investigations, the incident highlights the risk of promoting national champions. Trouble in one group can affect the bigger India story.