Adani’s troubles may give India Inc. a breather

By Andy Mukherjee

The US bribery case against Gautam Adani has become something of a suspense thriller. Everyone is waiting to see if the scandal will halt the tycoon’s frenzied pace of empire-building. While his billionaire rivals in cement may welcome a breather from fierce competition, his competitors in India’s energy industry may benefit from a return to simplicity.

The Adani Group has denied the Department of Justice’s allegations that its chairman was part of a Rs 2,118 crore ($250 million) scheme to secure solar power contracts by paying off public officials in India. The infrastructure behemoth has also promised to seek all possible legal recourse.

The gravity of the charges has taken India Inc. by surprise. The sheer range of Adani’s activities — from ports, airports, and roads to coal mining, power, data centers and defense production — means he has competitors across fields. Several of them are heavyweights in their own right.

A permanent mellowing of the 62-year-old’s competitive instincts isn’t his rivals’ central assumption. Adani is Prime Minister Narendra Modi’s close ally, and New Delhi may not allow his extradition to face charges in a courtroom in Brooklyn. Before such a risk pops up, the incoming Donald Trump administration might decide to dismiss the case.

That would only leave the civil suit for allegedly violating the antifraud provisions of federal securities laws. The US Securities and Exchange Commission is seeking “permanent injunctions, civil penalties, and officer and director bars.” Adani could offer to settle.

Still, protracted legal action may well mean that at least some global banks won’t be too keen to fund new Adani projects, even as they try to extract higher interest rates to roll over existing loans.

Everyone will be looking to equity markets for signals. The group’s shares slumped as much as $34 billion before recovering most of the lost ground. They have bounced back before — when a January 2023 report from the short seller Hindenburg Research wiped out more than Rs 12,70,860 crore ($150 billion) in market value. Even if briefly, all of the loss was recouped by June 2024.

As soon as Adani regained his financiers’ trust last year, he began to feverishly bulk up in a business that he had only recently entered: cement. And there, he butted heads with Kumar Mangalam Birla, the steward of one of India’s oldest business families.

Birla, a Mumbai-based commodities czar who controls over 150 per cent of the combined capacity of all US cement producers, fought back. The result? A brutal price war that has crunched the return on invested capital at both their building-materials firms to below 10 per cent this year.

Now that the DOJ has brought its case, the race between two billionaires to gobble up smaller players should slow down. A truce would go some way to lift the return on capital. It might also help the billionaire steelmaker Sajjan Jindal, whose JSW Group has a cement division waiting to go public, perhaps as early as January.

The impact on India’s energy business — at the heart of the kickback allegations — may be more far-reaching. Adani is building a renewable-power park five times the size of Paris. The US legal case could alter not just his fortunes, but India’s solar industry as well.

The economics became “messy,” a Bloomberg News report said this week, when New Delhi decided to offer generating capacity to bidders that promised to build factories to produce panels as well. Average auction sizes have risen since 2020, with plain-vanilla solar or wind tenders giving way to complex bids combining different technologies, such as wind and solar -- and even coal plus solar.

That has skewed the field in favor of large players like Adani, the country’s No. 1 renewables developer, and introduced opacity in pricing. More importantly, the practice of lining up generators before finding willing buyers hasn’t worked out well. According to the DOJ indictment, the high energy prices contemplated in the tender awards put off state-owned distribution utilities and created potential for graft.

Now that the bribery charges have gone to a US court, bankers, bondholders, and partners would be cautious to finance mega projects where price discovery of power has any chance of becoming a political hot potato.

France’s TotalEnergies SE, which owns a fifth of Adani Green, has paused further investment until the clouds have cleared. To prevent the entire industry from getting caught in the expanding gyres of the scandal, India needs to go back to its earlier practice of simple tenders with transparent pricing.

The other option is to find a different model for renewable energy. There is speculation Mukesh Ambani, the only other Asian richer than Adani, may try to upend power distribution by letting customers install micro-grids free of cost, and recovering the capital expenditure from them through monthly payments.

Such a model, copied from his market-leading telecom foray, could be disruptive, “with the potential to pull away both large power consumers (who pay high power tariffs) and rural folks (who get erratic power),” the website Carbon Copy noted recently.

For Adani to forestall a reordering of India’s business landscape, his legal troubles will need an early resolution. Pending that, cement producers may enjoy a breather, and the solar-power industry could end up inventing a new template to sell electricity.