A $265 million bribery scandal has engulfed the Adani group, threatening to severely undermine its ability to raise money in the US.

Prosecutors from the US department of justice filed criminal charges on five counts against Indian tycoon Gautam Adani, nephew Sagar and six others after it obtained a trove of documents and digital messages that revealed a colossal bribery and fraud scheme linked to the group’s renewable energy project.

The Adani group, however, vehemently denied the charges and said it would seek “all possible legal recourse”.

This is arguably the first time that an Indian company has been hauled to court in the US under the Foreign Corrupt Practices Act — a sweeping legislation that allows the US authorities and its market regulator to start legal proceedings against an overseas entity accused of paying bribes outside the country.

One of the most astounding revelations in the department of justice’s indictment is that on March 17 last year, FBI special agents approached Sagar Adani in the US with a “judicially authorised search warrant” and took custody of his electronic devices. They also provided him with a copy of the search warrant and served a grand jury subpoena.

The search warrant specifically mentioned “violations of the FCPA, securities fraud, wire fraud and related conspiracies” involving Sagar Adani, Gautam Adani and Vneet S. Jaain, managing director of Adani Green Energy, and the Indian renewable energy firm.

There has never been any mention of this until now.

It is not the first time that an Indian firm has been accused in the US of paying bribes in India. But most of them have opted to quietly pay the fines rather than deny the charge and brace for a legal battle.

The FCPA provisions are triggered when the US authorities believe it is possible to establish a nexus with US markets or the conduct of operations in that country through subsidiaries.

In the case of the Adani group, it was linked on both counts: the group had floated green bonds in the US to finance its renewable energy business, and it also had an affiliate — Azure Power Global — based in the US.

The US indictment has already started to hurt the Adani group’s interests.

A Reuters report said Kenyan President William Ruto had ordered the cancellation of a procurement process under which the country’s main airport was expected to be handed over to the Adani group.

High-priced power

The bribery charge stems from a situation that arose when Adani Green Energy found itself unable to sell solar power through the Solar Energy Corporation of India (SECI) — a government-owned company that helps develop renewable energy projects in India by parcelling out fiscal incentives and acting as a pass-through for power sales to state-owned power distribution companies.

The US department of justice said in its indictment filed before the Eastern District court of New York that the bribes became necessary when the SECI was unable to find buyers for the high-priced solar power.

The indictment did not mention the price at which the power was sold to the power distribution companies in five states: three in Andhra Pradesh, and one each in Tamil Nadu, Chhattisgarh, Odisha, and Jammu and Kashmir.

The Securities and Exchange Commission (SEC), the US market regulator, has filed a separate complaint on the bribery scandal in which it has named just two defendants: Gautam Adani and his nephew.

The regulator said the Adanis were involved in “paying or promising to pay the equivalent of hundreds of millions of dollars” in bribes to Indian government officials to secure their commitment to purchase power at above-market rates that would benefit Adani Green Energy and Azure Power, a renewable energy producer in India.

Market meltdown

The shock indictment against Gautam Adani — who battled a raft of allegations filed by US short-seller Hindenburg Research early last year — sent the group’s stocks plunging all over again with more than ₹2.2 trillion of investor wealth in his listed companies wiped out on a torrid day of trading.

The latest brouhaha is likely to affect the conglomerate’s fundraising plans, particularly in the overseas market, and also raise serious questions about its corporate governance standards all over again.

The bigger worry is that it could chill foreign investor interest in Indian companies in general at a time when the Modi government is looking to attract funds to realise the objectives of an ambitious, table-thumping Make in India programme.

The legal kerfuffle could hurt the Adani group which recently revived its expansion plans and planned to raise money from both the domestic and international markets. Sources said that the indictment could spark a “reputational and governance risk” at the conglomerate.

The criminal charges won’t just torpedo fund-raising plans alone. Group firms like Adani Green Energy have also been planning to refinance costlier debt by raising bonds from international markets at a relatively cheaper rate. This process could also take a hit. Sources, however, said domestic banks had no reason to worry since the listed Adani group firms are regarded as “standard assets”.

The Adanis could still shake off the troubles arising from the DoJ’s indictment. A lot will depend on whether or not the incoming Trump administration will pursue the case.

A Bloomberg report said Breon Peace, US attorney for the Eastern District of New York, who brought the case, is expected to step down and will be replaced by a Trump nominee. Peace was appointed during the Biden administration.