The Adanis will have to contend with a serious reputation loss globally following their indictment by a US district court and the Securities and Exchange Commission (SEC) on charges of bribery and committing fraud on US investors.
The BJP’s narrative of some foreign hand impeding India‘s progress will not stand a moment’s scrutiny in the global markets where corporates and other financial players respect the integrity of the US SEC.
In fact, the BJP and its ecosystem will do well not to harp on the fiction that US courts and market institutions are in some way trying to undermine India‘s progress. The same mistake is being repeated as had happened after the Hindenburg episode – conflating the Adani group with India. There is really no need to wrap the Adanis with the Indian flag. It simply won’t wash.
A more sensible strategy would be for the Adanis to fight the case legally, as they have said in their official statement. There is a chance that in the course of the legal battle, the Adanis may be able to reach a settlement within the legal framework that prevails in the US.
Meanwhile the US court’s indictment of the Adanis is likely to affect their ability to raise finances from the global markets for sometime to come, at least until the case reaches some stage of conclusion. Debt funding is critical for large infrastructure projects. Typically, the debt component is about three fourths of total project cost. The CNBC TV 18 channel reported the current outstanding debt of the Adani group at about Rs 2,47,000 crore. Much of this debt is from foreign sources.
After the Hindenburg episode, the Adani group had disclosed that nearly 70% of their total debt was raised from abroad. This ratio may have altered over the past year but the group still relies predominantly on foreign debt to drive its expansion. This factor – reliance on foreign debt – has become the most vulnerable underbelly of the Adani group after the US court indictment. Indeed, the first fallout after the indictment was that the group had to cancel its plan to raise $600 million of debt from the US market.
Adani’s vulnerability gets exacerbated as many of the group’s ambitious projects are abroad and most of them are linked to PM Modi’s foreign policy objectives. An important component of the India Middle East Infrastructure corridor to Europe, Haifa port in Israel, is being developed by the Adanis.
Also read: Modi & Co Have Created a Web of Sovereign Vulnerabilities for India
Geopolitically, the India-Middle East-Europe corridor, announced by Modi and Biden during the G-20 meet in New Delhi, is being projected as a rival to China’s Belt Road Initiative. The Adanis might have been planning more investments in this corridor for building rail/sea links towards Europe. The finances for this would have naturally come from European and US markets.
But now, with the US court indictment there is no knowing how western markets would respond to the Adani group’s debt financing requirements. Most experts say it will be next to impossible for the Adanis to raise big money from western markets until the case is settled. The reputation loss, in terms of market perception, will persist even after the case is settled.
The Adani group is at the centre of Modi’s solar mission and India‘s renewable energy target of 500 gigawatts by 2030. Its most ambitious project of developing 30,000 megawatts of solar-cum-wind energy in Khavda, Gujarat, spread over a desert area almost as big as Delhi, will require over $65 billion by one estimate. Modi is said to be very keen this project comes up in quick time. Where will the money come from if western financial markets are virtually ruled out?
When the Hindenburg episode hit the headlines, some big investors in the US were still willing to bet big on the Adanis. A highly reputed global fund, GQG, run by an Indian American Rajiv Jain, bought $2 billion worth of beaten down Adani stocks after the Hindenburg report. Subsequently, GQG has been buying more stakes in several Adani companies. By May 2024, the value of Adani stocks in GQG’s portfolio had gone up 150% , to $10 billion. GQG has emerged as the single biggest foreign investor in the Adani group over the past year.
However, after the US court indictment, even GQG has said it will reevaluate its investments in the Adani group. This is not good news for Adanis.
The problem with current trends in the global economy is that investment and financing activities are more geopolitically driven than ever. And large global infrastructure projects especially come with geopolitical tags. Kenya abruptly cancelling Adani’s proposed infrastructure projects is a case in point.
The Adanis had announced an ambitious plan of investing $10 billion in US energy following Trump’s victory. But these plans too are likely to be jeopardised, for now at least.
Interestingly, so far the Adani group was participating in global infra projects which were seen as a counter to China, whether in Sri Lanka, Myanmar, the Middle East or Africa.
However, quite ironically, today the financing options for his global ambitions are getting narrower in the West but they may possibly open up in China even as relations between India and China are undergoing a thaw of sorts. In a way, the nature of financing that the Adani group requires for its global infrastructure ambitions, linked undoubtedly to Modi’s foreign policy objectives, can possibly be met only by geopolitical considerations. The reputation loss caused to the group will come in the way of making pure commercial deals based on market principles and investor confidence.
This piece was first published on The India Cable – a premium newsletter from The Wire & Galileo Ideas – and has been updated and republished here. To subscribe to The India Cable, click here.
