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Following the US indictment of Adani group Chairman Gautam Adani, his nephew Sagar Adani, and six others in an alleged bribery scam, global rating agency Moody’s on Tuesday revised the outlook on seven firms of the conglomerate to ‘negative’ from ‘stable’, but affirmed its ratings on all seven firms.
In the indictment, the US prosecutors had alleged that Gautam Adani and seven others offered or promised to offer 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.
According to Moody’s, though the allegations and the charges made by US Attorney’s Office and the Securities and Exchange Commission pertain to Gautam Adani and senior management team members, “these could have a broader credit impact on all rated Adani group issuers” given his “prominent role as chairman of each of the rated entities or their parent companies, as well as the controlling shareholder”.
The indictment will “likely weaken the Adani group’s access to funding and increase its capital costs”, Moody’s said.
“The rating action further recognises 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,” it said.
The rating agency said it “could downgrade the ratings of the group entities if the legal proceedings lead to a material disruption to their operations or access to capital”.
“A downgrade is also likely if the group is unable to address or rectify governance issues associated with the on-going legal proceedings,” it said.
Moody’s, however, said “an upgrade of the ratings is unlikely in the near term”, given the negative outlook on all seven issuers.
“However, we could change the rating outlook to stable if legal proceedings conclude clearly with no material negative credit impact,” it said.
The SEC had charged Gautam Adani and Sagar Adani, executives of Adani Green Energy Ltd, and Cyril Cabanes, an executive of Azure Power Global Ltd, with conduct arising out of a massive bribery scheme. The Adani group has denied all allegations and termed them baseless.
Moody’s Ratings said it has changed the outlook on seven Adani Group entities including Adani Green Energy Ltd Restricted Group (AGEL RG-1), Adani Green Energy Ltd Restricted Group (AGEL RG-2), Adani Transmission Step-One Ltd (ATSOL) and Adani Transmission Restricted Group 1 (AESL RG1), to negative from stable.
The affected entities are Adani Electricity Mumbai Ltd (AEML), Adani Ports and Special Economic Zone Ltd (APSEZ) and Adani International Container Terminal Private Ltd (AICTPL). A rating outlook is an opinion regarding the likely rating direction over the medium term. A negative, positive or developing outlook indicates a higher likelihood of a rating change over the medium term.
Moody’s action follows that of Fitch Ratings on Monday which took negative rating actions on Adani Group’s infrastructure entities and restricted groups. Last week, S&P Global revised Friday the outlook on Adani Electricity and APSEZ to ‘negative’, while affirming ‘BBB-’ ratings on both the companies.
On Tuesday, shares of the Adani group companies fell up to 7 per cent. Stocks of Adani Green plunged 7.05 per cent apiece, Adani Enterprises fell 4.78 per cent, and Adani Energy Solutions closed 3.79 per cent down on the BSE.
