Adani pulls bond as founder charged

Published 22 November 2024, 14:47

By Sara Velezmoro, Morgan Davis

News that senior Adani Group executives are facing bribery charges in the US caused shares in its companies to plunge and Adani Green Energy to pull its latest bond deal on Thursday.

A group of Adani Green Energy subsidiaries priced a new US$600m senior secured bond offering at 7.45% early on Thursday, but bookrunners that morning said the deal had been cancelled following overnight announcements by the US Department of Justice and Securities and Exchange Commission.

Adani Group chair Gautam Adani and seven other defendants, including his nephew and executive director of Adani Green, Sagar Adani, have been indicted in a New York court for allegedly agreeing to pay over US$260m in bribes to Indian government officials to obtain contracts expected to yield US$2bn of profit after tax over approximately 20 years.

In a separate civil suit, the SEC alleges the company raised over US$175m from US investors from a US$750m bond in September 2021 while the alleged bribery scheme was in place.

Cyril Cabanes, a former director of Azure Power Global, and previously managing director of infrastructure for Asia Pacific and the Middle East at Canadian pension fund CDPQ, as well as Deepak Malhotra and Saurabh Agarwal, two other former employees in CDPQ's infrastructure business, have also been charged by the SEC in relation to the claims. Azure Power and CDPQ, which holds a 50% stake in the renewable energy company, both said they were cooperating with the authorities.

Adani Green released a brief statement on Thursday acknowledging the indictment and reiterating the decision to not proceed with its US dollar bond offering. Adani Group in a statement later denied the charges and called them "baseless".

This is the second time in less than two years that an Adani company has had to pull a fully subscribed capital market issue as a result of negative news headlines. In early 2023, the group's flagship, Adani Enterprises, withdrew a Rs200bn (then US$2.45bn) follow-on share offering after US-based short-seller Hindenburg Research published an explosive report alleging fraud and false accounting at the Indian conglomerate, charges that Adani denies. The Securities and Exchange Board of India is still completing investigations into matters raised by Hindenburg's report.

The new bond deal, capped at US$600m, was marketed at initial price guidance of 7.75% area, and saw orders reach nearly US$2bn during the day. It followed an attempt by the Indian renewable energy company in October to sell a US$1.2bn 20-year bond that was scrapped because of unsatisfactory demand. That deal, which offered a 7% yield, attracted orders of just US$1.4bn, including US$100m of lead interest.

Adani Green's US dollar bonds due 2042, which were sold in March this year, were bid on Friday at a cash price of 82, about 11 points lower than they had been before the charges. The stock prices of Adani Green, Adani Enterprises, Adani Ports and Special Economic Zone, Adani Energy Solutions, Adani Power, Adani Wilmar, Adani Total Gas and Ambuja Cements fell 18.9%, 22.6%, 13.6%, 20.0%, 9.2%, 10%, 10.4% and 11.9% on Thursday.

Australia-listed asset management company GQG Partners, which has made big investments in Adani Group stocks in the past two years, said in a statement: "Our team is reviewing the emerging details and determining what, if any, actions for our portfolios are appropriate." It said that more than 90% of the US$159.4bn of assets it manages for clients is invested in issuers unrelated to Adani Group. GQG's share price closed down 19.3% on Thursday.

Adani Group had gradually rebuilt access to capital markets after last year's Hindenburg report caused a similar plunge in the shares of its listed companies. Since then, its group companies have successfully accessed the syndicated loan, offshore and onshore bond, and equity markets, and the group repaid all of its US$2bn of share-backed financing. Adani Enterprises raised the equivalent of US$500m in primary equity just over a month ago through a qualified institutional placement at a price of Rs2,962 per share, more than 20% higher than the current market price.

"The development comes at the crucial time, when the group was on the verge of reinstating investor confidence with the USD issuance," said Tanvi Arora, high-yield bonds analyst at Lucror Analytics. She said that it would take time for investor sentiment to recover.

Wealth management firms had been aiming to sell down their positions in Adani Enterprises' maiden public rupee bond issue in the secondary market on Thursday, but withdrew their offers because of the US indictment.

Another banker away from the US dollar deal called the market moves a "knee-jerk" reaction, and said "we just need the dust to settle".

S&P on Friday affirmed its BBB– ratings on Adani Electricity Mumbai and Adani Ports and Special Economic Zone, as well as its BB+ rating on the Adani Green offshore bond entity, and lowered the outlooks to negative.

"We believe domestic, as well as some international banks and bond market investors, look at Adani entities as a group, and could set group limits on their exposure," wrote S&P.

Adani Green has the weakest liquidity and credit fundamentals in the Adani complex, wrote CreditSights on Thursday, with short-term debt of US$2bn-equivalent as of September 30. Adani Green has nearly US$600m of project loans due by March 2025 which it is now unlikely to be able to refinance in the rupee bond market early next year, CreditSights wrote. The restricted group behind last week's US dollar bond offering also has US$340m of project level loans due by March 2025 and US$260m due by March 2026.

However, a source close to the company said that it had other funding options, and most were cheaper than the pulled offshore bond.

Indian financial institutions have total exposure of Rs921bn to Adani Group companies, according to research from IIFL Securities.

Wider impact

Fellow Indian company Vedanta Resources had announced a US dollar bond mandate on Wednesday, with an eye toward coming out to the market as early as Thursday, but it will now wait until Monday to approach the market, said the second banker away.

"The US probe is affecting other credits because the investor base is the same. Currently, investors are managing losses. Every investor is affected," said a third banker away from the deal. The impact of the indictment remains to be seen, but the banker speculated that Adani Group's short-term funding will be affected, as well as its ability to tap the US dollar bond market in the near term.

A loan banker close to the company said the news from the US would probably not cause lenders to pull their support.

“You can’t ignore Adani if you want to do business in India," he said. "You’ve got to engage with them and try to get them to improve on the governance issues they face. We do want to finance India’s transition, and the Adani Green assets are ring-fenced from the rest of the company.”

There may be limited appetite for fundraising at the Adani Enterprises level, said a DCM banker in India, but projects backed by hard assets are more likely to find funding.

A senior loan banker in Singapore warned, though, that contracts with offtakers could be ruled null and void if the indictment involved an operational power plant, which would raise uncertainty about the future of the plant.

Kenyan president William Ruto said in his state of the nation address on Thursday that he had cancelled a public-private partnership deal signed between Adani Group and the energy ministry to develop power transmission and called off a procurement process that had been expected to award the group a contract to develop the country's main airport.

The Adani US dollar bonds were to be issued by Adani Hybrid Energy Jaisalmer One, Adani Hybrid Energy Jaisalmer Two and Adani Solar Energy Jaisalmer One, together Hybrid (Solar and Wind) Renewables.

The new 144A/Reg S notes had a 20-year door-to-door tenor and approximately 13.09-year weighted average life, with expected ratings of Baa3/BBB–/BBB+ (Moody's/Fitch/CareEdge). Sustainable Fitch provided a second-party opinion on the restricted group's green finance framework. The bonds were secured against equity shares, assets and receivables of the issuers.

DBS Bank, Emirates NBD Bank, First Abu Dhabi Bank, ING, Intesa Sanpaolo London branch, Mizuho Securities (Singapore), MUFG, SMBC Nikko and State Bank of India London branch were joint bookrunners.

Proceeds were to be used to repay the issuers' foreign currency loans used to fund solar-wind hybrid power plant development projects.