Corporate Grapevine     

Published: November 30, 2024
Updated: November 30, 2024

Will Adani weather US bribery charges?

Not only have the US charges against the Adani group deepened the crisis being faced by Gautam Adani, they have eroded the credibility of the Indian government and India’s regulator of the securities market (SEBI). After the US charges of a $ 265 million bribery scam, a fresh application was filed before the Supreme Court urging it to take on record the charges of bribery brought against the Adani group. The petition, filed by Vishal Tiwari, alleges shortcomings in the SEBI (Securities and Exchange Board of India) investigation into the Hindenburg Research allegations against the Adani group raise concerns over the market regulator’s credibility.

Though the Adani group has denied the allegations and the Modi government is silent on the issue, the allegations are bound to have wider ramifications for the Adani group, which borrows heavily in the overseas bond markets, and will hurt its credibility. Interestingly, the continuous attacks on the Adani group by external forces are unprecedented and remind investors of similar attacks on the Ambani group during the late 1980s with the then VP Singh government launching several investigations against Reliance Industries. Additionally, the US Securities and Exchange Commission (SEC) has filed separate charges against the Adani group and Azure Power global executive Cyril Cabanes to secure $ 2 billion in loans and bonds.

MODI SILENT

But in the case of Adani, the attacks are from overseas and look well-coordinated and very serious. Meanwhile, the Indian government headed by Narendra Modi is maintaining a mysterious silence over the entire episode. Of course, thankfully, the overall debt for the Adani group decreased post the Hindenburg attack last year – falling from Rs 2,41,000 crore in March 2023 to Rs 2,38,500 crore in September 2023. While it has risen again now to Rs 2,79,300 crore, primarily driven by a rise in Adani Enterprises debt(including their lease liabilities), the net debt to EBITDA number for the group has fallen sharply with a rise in EBITDA, as assets got operational across the group (eg, Adani Green).

Further, the group is sitting on a cash pile of Rs 39,000 crore as of September 2024, as against cash reserves of Rs 22,300 crore in March 2023. In terms of the source of funds, over the years the group has shifted away from banks to bonds. However, since March 23, analysts have seen the share of dollar bonds decrease and that of NBFCs increase in the source of funds -- which we expect was due to favourable rates in Indian markets vs dollar bonds.

Investors of the Adani group are confident that the latest attack by the US Department of Justice won’t make a difference and it’s just a matter of time before the company regains its $ 55 billion market cap lost after the latest attack. They feel that once Donald Trump takes over as US President, the Indian government headed by Mr Modi will sort out the issue.

A new generation of business leaders are taking over India Inc. Children of billionaires Mukesh Ambani, Gautam Adani and Kumar Mangalam Birla have taken over the reins of the family businesses or are being groomed to do so.

Mukesh Ambani’s three children have been given a clear-cut demarcation of businesses. Similarly, the next generation of the Adani family led by Karan and Jeet, Pranav and Sagar Adani are looking after different businesses and are learning the ropes from the best in the business. Of Kumar Mangalam Birla’s three children, two have been inducted into the board of Grasim, the holding company.

Interestingly, a new breed of self-made billionaires is now coming from start-ups like Swiggy, Zomato and Zepto as new age businesses are slowly taking over the Indian economy. Backed by venture funding and private equities, these companies are producing more billionaires than old-economy Indian companies.

India’s real GDP growth slowed to a seven-quarter low of 5.4 per cent in the September quarter, which is significantly below the consensus and our expectation of 6.5% YoY. The slowdown was largely led by weak consumption, with urban demand showing fatigue, rural consumption yet to pick up, and a decline in government capital expenditure.

The trends from the December quarter are not so good, with consumers not spending due to high taxes on almost all products, while companies not investing in new capacities due to weak demand. Analysts, however, expect the rest of the financial year to be slightly better as the government increases its spending on infrastructure building. But overall the situation remains grim with jobless growth and lack of opportunities for the new generation.