Two days after US Prosecutors accused Adani Group Chairman Gautam Adani and seven others of alleged $265 million bribery schemes, global rating agency S&P Global on Friday revised the outlook on Adani Electricity and Adani Ports and Special Economic Zone Ltd. (Adani Ports) to “negative”.
The rating agency affirmed its “BBB-” ratings on both the companies.
Adani Green Energy Ltd. Restricted Group 2’s (AGEL RG2), a subsidiary of Adani Green Energy Limited (AGEL), outlook has also be revised to negative, S&P Global said.
On Wednesday, prosecutors in New York accused Gautam Adani, his nephew Sagar Adani and six others for allegedly offering Rs 2,029 crore (US $265 million) in bribes to Indian government officials for securing “lucrative solar energy supply contracts” with state electricity distribution companies.
“Because of the potential impact across the wider Adani Group, we revised to negative the outlook on Adani Electricity Mumbai Ltd. (Adani Electricity) and Adani Ports and Special Economic Zone Ltd. (Adani Ports). We also affirmed our ‘BBB-‘ ratings on these entities,” the rating agency said.
Project finance entity Adani Green Energy Ltd. Restricted Group 2 (AGEL RG2) is a subsidiary of Adani Green Energy Limited (AGEL), the entity linked to the allegations. Although it is ring fenced from the parent, the rating agency said it has revised to negative the outlook on AGEL RG2 and affirmed its ‘BB+’ issue rating.
On Thursday, Adani Green Energy called off its $600 million bond offering, after the US indictment of promotor Gautam Adani and others in the bribery case. Adani Green Energy had planned to use the bond sale’s proceeds to repay foreign-currency loans.
“The negative outlook on these entities indicates that, in our view, their cash flows could be materially affected if their funding access weakens, their funding costs rise significantly, or the allegations are proven, in addition to our assessment of their governance and business profiles,” S&P Global said.
It said that A US indictment of three board representatives of an unrated Adani group entity could affect investor confidence in other Adani group entities (because the founder is on the board of multiple entities within the group), thereby potentially impairing their funding access and increasing their funding costs.
The alleged bribery case could further raise questions regarding the management and governance of various Adani group entities, it said.
“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. This may affect the funding of rated entities,” the rating agency said.
S&P warned that if allegations of illegal activities or misleading statements prove true, it could assess the group’s governance more negatively.
