Indian billionaire Adani, 3 former executives of Canadian pension fund charged in fraud scheme

Indian billionaire Gautam Adani, among Asia's wealthiest individuals, faces a significant challenge as U.S. prosecutors indict him on charges of fraud and bribery. The potential impact of the case on his businesses, his future, and the broader Indian economy and government remains uncertain.

On Friday, shares of some Adani Group companies recovered slightly after a sharp decline the previous day, following the announcement of the charges in New York. Six of his ten publicly listed companies saw stock prices rise by 1% to nearly 4%.

Adani, a prominent figure in India with perceived ties to Prime Minister Narendra Modi, was charged in a Brooklyn court with securities fraud and conspiracy to commit securities and wire fraud. This legal battle comes just after Adani and his conglomerate were beginning to recover from allegations made earlier this year by Hindenburg Research, accusing him of stock manipulation and fraud, which wiped out over $60 billion in market value.

The case raises questions about corporate governance and the influence of large, family-run conglomerates in India's economy, which Modi aims to position as the world's third-largest. It also brings scrutiny to allegations of crony capitalism.

Allegations of Bribery in a Solar Project

Prosecutors allege Adani misled investors in a major solar energy project in India, hiding that it was enabled by bribes. The indictment claims approximately $265 million in bribes were paid to Indian government officials. Seven other individuals connected to Adani’s businesses are also charged, including three former executives from a Canadian pension fund. The executives are accused of obstructing investigations by the FBI, the U.S. Securities and Exchange Commission, and a grand jury.

The Adani Group has denied the allegations, describing them as "baseless," and announced plans to seek legal recourse. Shares in Adani Green Energy, the renewable energy subsidiary at the center of the case, dropped by 8% following the charges. None of the accused have been arrested.

Fallout for Adani’s Reputation

The indictment has dealt a significant blow to Adani's public image, which had been undergoing rehabilitation after the Hindenburg allegations. Michael Kugelman, director of the South Asia Institute at the Wilson Center, commented, "This indictment came like a bolt from the blue and instantly reversed all recent progress in salvaging his reputation and business empire."

Adani’s influence extends across India's economy. He operates ports, airports, coal mines, and other infrastructure projects, while also pursuing ambitions to become the world’s largest renewable energy player by 2030. Analysts believe his success has often aligned with government priorities, fostering a perception of close ties with the Modi administration.

Political Repercussions

The controversy has put Modi's government in a challenging position. The opposition has seized the moment, demanding Adani’s arrest and accusing Modi of shielding him. Some opposition lawmakers are expected to escalate their demands during the upcoming parliamentary session.

A senior figure from the ruling party defended Adani on social media, stating the charges are merely allegations and that the accused remain innocent until proven guilty. Critics interpreted this as a sign of support for Adani.

International Consequences

The controversy has already impacted Adani’s overseas operations. Kenya's government canceled agreements with the Adani Group for airport modernization and energy projects. In Bangladesh, a court has ordered an inquiry into one of Adani’s energy ventures, while in Sri Lanka, the case could complicate India's efforts to counter Chinese influence in the region.

Analysts warn this comes at an inopportune time for India, which seeks to attract global investment as companies look to reduce reliance on China. Kugelman remarked, "This is bad timing for New Delhi, as it tries to capitalize on global interest in alternate production hubs."

Business Impact

Despite the allegations, experts believe the fallout will be largely contained to the Adani Group, with limited repercussions for the broader market. Ambareesh Baliga, a market analyst, suggested the charges may make it harder for Adani to secure funding, potentially slowing his company’s growth and expansion. However, Baliga added, "Investors may stay away initially, but they will eventually return. This is not a group that can be ignored."

The developments underscore the challenges associated with corruption in India’s economy. "Investors are already aware of how ingrained corruption is," Baliga noted. "For Adani, the scale and influence of his group ensure that, despite setbacks, his business will remain significant."