Many readers will be aware that Gautam Adani was accused of fraud by a US court this week. In a brief statement, Adani Group said that the allegations were “baseless and denied.” The indictment relates to a solar power project, but what does this mean for Adani Group’s cement businesses?
The charges by the US Department of Justice allege, following an investigation, that Gautam Adani, Sagar Adani and Vneet Jaain, executives of India-based renewable-energy company Indian Energy Company, committed “...securities and wire fraud and substantive securities fraud for their roles in a multi-billion-dollar scheme to obtain funds from US investors and global financial institutions on the basis of false and misleading statements.” A number of other individuals have also been accused, along with the two Adanis and Jaain, of participating in a US$250m bribery scheme to Indian government officials connected to a large-scale solar energy project. The indictment related to the period 2020 - 2024 and further alleges on several occasions that “Gautam Adani personally met with an Indian government official to advance the bribery scheme.” The Securities and Exchange Commission (SEC) has also started a connected civil case.
The problem here is that the indictment has rocked the value of Adani Group’s subsidiaries and reduced the credit ratings of some of them. This in turn will make it harder for these companies to raise money in the future for expansion. Various reports in the media said that the group’s companies had lost something in the region of US$30bn as stock prices fell by around 20%. They have since rallied somewhat. And lest we forget, Adani Group has some serious expansion plans. In the cement sector, it is targeting a production capacity of 140Mt/ yr by 2028. Recent transactions include Ambuja Cement’s purchase of Penna Cement for US$1.25bn in August 2024 and a planned acquisition announced in October 2024 of a 47% stake in Orient Cement for US$451m. The group was also linked in the local media to a bid to buy Heidelberg Materials’ India-based business in October 2024.
All of this comes with a price. International credit ratings agency S&P put Adani Ports, Adani Green Energy and Adani Electricity on a downgrade warning. Then, Fitch Ratings and Moody’s followed. Moody’s, for example, downgraded its outlook for seven Adani Group companies to ‘negative’ from ‘stable’ but it affirmed ratings on them. It commented that the allegations “could have a broader credit impact on all rated Adani group issuers” and that they would “likely weaken the Adani group’s access to funding and increase its capital costs.” It added that its actions recognised “...the possibility of broader weaknesses in the governance structure across the rated Adani group entities as well as potential operational disruptions, including on their capital-spending plans, while legal proceedings are going.” The decision by the ratings agencies does not appear to have directly affected Adani Group’s cement companies, Ambuja Cements or ACC, so far. The group may get lucky here given that these companies focus on the domestic market. Thus their credit ratings may remain more buoyant, regardless of what happens next.
As with a number of other global issues at the moment, the outcome of the recent US presidential election may also play into this case. Attorney Ravi Batra told the Press Trust of India that the incoming Trump administration might view the Adani charges as so-called ‘lawfare.’ This is where legal processes are used to target a nation’s economic or other opponents. In addition the current chair of the SEC, Gary Gensler, announced his intention to step down from the role in January 2025. It seems unlikely that the Trump administration might intervene in a legal case involving a foreign company accused defrauding US citizens but the possibility of realpolitik playing a role shouldn’t be totally discounted.
This is the second major international scandal overhanging Adani Group since the disclosures by Hindenburg Research back in early 2023. Those allegations were relatively easy to shrug off given that its accuser was an investment research firm with a reputation for using its findings for short selling shares. Hindenburg Research was not a neutral bystander. This time round, the US judicial system has become involved and the consequences are bigger both reputationally and from any potential legal outcome. In the short term, the credit implications for Adani Group as a whole are becoming apparent. Various companies and countries have stalled or cancelled planned investments. However, the cement business is smaller than the group’s power and transport concerns. It also operates domestically. We’ll have to wait and see what the wider implications for Adani Group are. The first thing to watch for the cement business will be any effect on its expansion plans.
