Will U.S. Fraud Charges Against Adani Lead to Less Foreign Investments in India

The Adani Group rapidly grew into India’s largest business conglomerate after Prime Minister Modi assumed power in 2014

November 28, 2024

On November 20, the U.S. Department of Justice (DOJ) filed criminal charges in a court against billionaire Gautam Adani and two other executives of India’s Adani Group alleging “conspiracies to commit…substantive securities fraud.” Also, “Gautam S. Adani and seven other business executives allegedly bribed (bribes totaled more than $250 million) the Indian government to finance lucrative contracts” for a large solar energy projects, a U.S. official said in a statement.

“On several occasions, Gautam S. Adani personally met with an Indian government official to advance the Bribery Scheme, and the defendants held in-person meetings with each other to discuss aspects of its execution,” the DOJ stated.

Also on November 20, the U.S. Securities and Exchange Commission (SEC) filed civil charges alleging that Gautam Adani and his nephew Sagar Adani “were engaged in the bribery scheme during a September 2021 note offering by Adani Green that raised $750 million, including approximately $175 million from U.S. investors. The Adani Green offering materials included statements about its anti-corruption and anti-bribery efforts that were materially false or misleading in light of Gautam and Sagar Adani’s conduct.”

The Adani Group said the SEC and DOJ allegations against its executives are baseless.

Gautam Adani, 62, founder of the Adani Group, has a net worth of $63 billion according to Forbes. With $32 billion in annual revenues, the Adani group’s wide range of businesses includes owning power plants, transmission lines and coal mines; cement and real estate businesses in India and abroad; operating the Mumbai airport and other airports; and Mundra, India’s largest port and other ports.

The Adani Group, which began in 1988 as a commodities trading firm, expanded through acquisitions and with the support of Indian Prime Minister Narendra Modi, according to Forbes.

In 2014, Gautam Adani’s net worth was $2.8 billion, according to the magazine. He is from Gujarat. That year Narendra Modi, the former Chief Minister of Gujarat, took over as India’s Prime Minister. Adani “has profited since fellow Gujarati Narendra Modi, India’s most influential prime minister in decades, took office in 2014,” according to AP News.

By September 2022, Adani’s net worth rocketed up more than 50-fold to $152 billion, according to Forbes. The Adani Group was then the largest business conglomerate in India by stock market value.

When he first became Prime Minister in 2014, Narendra Modi announced he would create 100 million new jobs. Yet today, ten years later, including hidden unemployment, more than 200 million are unemployed in India – roughly the entire population of Brazil. Millions more are semi-employed, including in part time jobs as cooks and cleaners in middle-and upper-class homes.

Not surprisingly, India’s young population, with half being under the age of 25, is no longer viewed by Western analysts as a favorable demographic dividend but as a “ticking time bomb,” as The Times of London noted.

Since becoming Prime Minister, Modi has announced several major economic plans, including to tackle rising unemployment. But to fulfill even part of his plans he needs to attract at least $3 trillion in investments, especially for critical infrastructure projects. Private companies in India do not have the capital and the technology and mostly avoid investing in infrastructure given low profits and policy uncertainties. Modi and his officials are eager to attract foreign investors.

News of the U.S. charges is already impacting foreign investments in India. France’s TotalEnergies said in a statement that it “will not make any new financial contribution as part of its investments in the Adani group of companies” until the allegations against the Adani executives are cleared. Total is a major investor in India, owns 20% of Adani Green and is the joint venture partner with Adani on three projects.

The U.S. International Development Finance Corp. is reviewing a commitment to lend $553 million to fund a project partly owned by the Adani Group. "We are committed to ensuring that our projects and partners uphold the highest standards of integrity and compliance," an agency official said, according to Reuters.

Kenya cancelled two contracts with the Adani Group, BBC reported: $1.9 billion upgrade of Kenya’s main airport; and $736 million for constructing power lines.

Over the past week, bonds of some of the ten companies in the Adani Group were downgraded by S&P and other global credit rating agencies. The prices of the bonds, including those sold to U.S. and other foreign investors, fell sharply. The stocks of the ten companies in the Adani group collectively lost $55 billion in value.

The Financial Times noted that, for international investors, the charges against Adani “raise new questions about the probity and integrity of Indian regulators and business leaders, while casting doubts on the nation’s preferred narrative of an ascending economy that offers a safe alternative to a corrupt and capricious China.”

The Adani Group rapidly became India’s largest conglomerate under Prime Minister Modi. So, the U.S. allegations against the Adani executives will likely lead U.S. and other Western investors to be more cautious about investing, not just in the Adani Group, but in India. As it is, Western companies and investors are mainly interested in investing in consumer and media businesses in India and not in funding the much needed infrastructure and job creating projects.

In February 2023, New York based Hindenburg Research published a report which alleged that Adani “engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades.” Following the report, the Adani Group of companies lost more than $100 billion in value, with some of the stocks in the group falling 60% from their peak levels.

Six months later, Deloitte resigned from its role as statutory auditor for Adani Ports, citing undisclosed related-party transactions, “flagged in our report as the basis for a qualified opinion that accompanied its resignation,” according to Hindenburg.

Apparently, Adani’s supporters believe that incoming President Donald Trump could dismiss the investigations against the Adani executives. “India would like nothing more than for Trump to halt the investigation once he takes office. That’s unlikely. Trump, however, could take a positive view of Adani, a fellow businessman who has praised Trump effusively,” Michael Kugelman, director of the South Asia Institute at the Wilson Center, told AP.

In its 2023 report, Hindenburg Research stated that it “presented overwhelming evidence…of why we believed Indian conglomerate Adani Group was operating ‘the largest con in corporate history.’”

TotalEnergies financial exposure to Adani companies is between $4 and $5 billion according to a Wall Street firm’s estimate, Reuters reported. Despite making such a sizeable investment, the major French investor in India stated “it was not made aware of the existence of an investigation into the alleged corruption scheme” at Adani, learning about it only “through public announcements made by the US authorities.”

(Story updated December 1, 2024.)