Fitch puts some Adani bonds on negative watch as Sri Lanka weighs accusations

By Uditha Jayasinghe, Scott Murdoch and Chris Thomas

(Reuters) -Sri Lanka is weighing U.S. bribery accusations against Adani Group and Fitch put some company bonds on a watch list for a possible downgrade, as fallout widens from indictments of some key executives of the Indian conglomerate.

U.S. prosecutors have charged billionaire Gautam Adani, the group's founder, his nephew Sagar Adani and six others for their alleged roles in a $265-million scheme to bribe Indian officials to secure power supply deals.

Adani Ports, India's largest private ports operator, owns 51% of a new container terminal project expected to begin operations next year in neighbouring Sri Lanka's city of Colombo.

Sri Lanka's finance and foreign ministries were reviewing the accusations, cabinet spokesperson Nalinda Jayatissa told reporters on Tuesday, adding that the government would consider all aspects of the group's projects in the Indian Ocean island.

Jayatissa declined to say how long it would take to assess the ministerial reports.

The comments came days after a U.S. agency that agreed to lend more than $550 million to the Sri Lankan port development said it was reviewing the impact of the bribery accusations against some key Adani executives.

The Adani Group has dismissed the accusations as "baseless and denied", along with those made by the U.S. Securities and Exchange Commission in a parallel civil case, adding it would "seek all possible legal recourse".

On Tuesday, ratings agency Fitch also put some Adani Group bonds on watch for a possible downgrade, citing the indictment.

Adani Energy Solutions Ltd, Adani Electricity Mumbai and some of Adani Ports and Special Economic Zone rupee and dollar bonds are now on "watch negative", Fitch said in a statement.

Ratings on four Adani subsidiary senior unsecured dollar bonds were downgraded from stable to negative, the agency said.

Adani stocks opened further down on Tuesday. Of 10 listed companies that have lost about $33 billion in market value since the indictment, Adani Green has been the hardest hit, giving up about $9.7 billion.

The stock was down 7.5% on Tuesday.

A ratings watch negative signals a heightened probability of a rating downgrade that could affect the pricing of hundreds of millions of dollars worth of Adani's debt.

BUSINESS IMPACT

Fitch will monitor the U.S. investigation for any impact on Adani's financial position, it added in Tuesday's statement.

Specifically, it would watch for "any material deterioration in near- to medium-term funding access, including their ability to roll over existing credit lines or access new facilities, as well as potentially higher credit spreads," it said.

Rating agency S&P Global put Adani Ports, Adani Green Energy (NS:ADNA ) and Adani Electricity on a downgrade warning due to the U.S. indictments.

The reactions from the Sri Lankan government and Fitch come a day after French oil major TotalEnergies (EPA:TTEF ) said it would halt financial contributions to its Adani Group investments after last week's indictment.

In response, Adani Green Energy said on Tuesday there was no new financial commitment under discussion with TotalEnergies and that the French firm's decision would not have any material impact on the company's operations or its growth plans.

The Indian conglomerate, however, has received support from one of its main backers, GQG Partners. The Australia-listed investment firm did not see the indictments having a material impact on Adani businesses, it told clients in a memo.

Except for Adani Green Energy, the group does not need to raise capital at this point, it added in the memo, seen by Reuters. But GQG warned that if Adani did need more funding, the indictment would limit its ability to access foreign capital.

Any negative actions by the Indian government could have meaningful implication for Adani, it added, though it believed the government would maintain support for Gautam Adani.

GQG picked shares worth $1.87 billion in four Adani group companies last year, shortly after a short-seller's critical report sparked a stock rout.

GQG has a stake of nearly 20% across Adani Group companies, amounting to about 6.1% of its total assets of $158.6 billion. By Thursday GQG’s total exposure fell to 5.2% of total assets.

GQG did not reply to a request for comment.

Adani dollar bonds steadied on Tuesday and prices rose slightly after three days of heavy falls.

Prices on some of the more liquid Adani Ports and Special Economic Zone debt maturing between 2027 and 2041 were up between half a cent and 1.5 cents on the dollar. They have fallen about 8 cents to 12 cents since news of the indictment.



Leading ESG ratings provider Morningstar Sustainalytics said it would review Adani Green Energy's ESG risks.

"No business, green or brown, can represent a good investment opportunity without robust governance policies and practices," Hortense Bioy, its head of sustainable investing research, said in an email.

Source: Investing.com