Global banks weigh halting fresh credit to India's Adani after U.S. indictment, say sources (updated)

Adani Total Gas

22/11/2024 08:56

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      Senior bankers at global banks discuss exposure, possible
impact
    

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      Some banks say they plan to pause fresh credit temporarily
    

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      S&P: indictment may affect investor confidence in Adani
firms   
    

  
 (Adds comment from Standard Chartered and Deutsche Bank in
paragraph 17)
    By Shankar Ramakrishnan, Sumeet Chatterjee, Davide Barbuscia
and Sinead Cruise
       HONG KONG/NEW YORK, Nov 22 (Reuters) - Some global banks
are considering temporarily halting fresh credit to India's
Adani Group but staying put with existing loans following U.S.
prosecutors' indictment of its billionaire founder Gautam Adani
for fraud, sources said.
    U.S. prosecutors have charged eight people, including Adani
chair Gautam Adani, with agreeing to pay about $265 million in
bribes to Indian government officials to obtain contracts and
develop India's largest solar power plant project.
    The crisis is the second in two years to hit the
ports-to-power conglomerate founded by Adani, 62, one of the
world's richest people. Adani Group has said the allegations
made by the U.S. authorities were "baseless and denied".
    Senior executives at two of Adani's global lenders said that
they have had multiple calls within their respective banks since
the indictment details were announced to discuss exposure to the
group and what the impact of the latest development would be on
the group's financials.
    "We will have to put a pause to fresh lending until we are
able to figure how this will play out. I think it will be a
while before the bank is able to tap the credit market," said a
banker at one of the leading Western banks. 
    The banker, who is involved in talks related to Adani credit
exposure and declined to be named as he was not authorised to
speak to the media, said most of the group firms have stable
cash flows and are not in "desperate need" to raise capital.
    The indictment would, however, cast a cloud over fundraising
plans for expansion within India and abroad, as there will be
greater creditor scrutiny not just on the indictment outcome but
also on the "key man risk" for the group, the banker said.
    A senior banker at another Western bank, which is one of the
major lenders to the group, said that the bank would also put a
temporary freeze on fresh lending and was keeping a close watch
on the Indian government's reaction to the indictment.
    All the bankers spoke to Reuters for this story on the
condition they and their institutions would not be identified
due to the sensitivity of the matter and because the internal
discussions are confidential.  
    Indian opposition parties that have long complained that
Adani and his conglomerate have been treated favorably by Prime
Minister Narendra Modi's government called for an investigation
into allegations of wrongdoing. 
    Modi and Adani, both from the western state of Gujarat, have
denied impropriety.
    "Our future course of action will largely depend on whether
the government will now try to find a way to resolve this or
launch its own probe," said the senior banker at a Western bank,
adding the infrastructure giant has now become "too-big-to-fail"
for India.
    A Japanese bank with credit exposure to Adani said in cases
like the one involving the Indian conglomerate, lenders tend to
pause fresh lending due to reputational risk. The indictment of
an individual, however, would generally not break any of its
loan covenants, said the bank, which declined to be named.  
    Adani did not immediately respond to Reuters request for
comment.
        
  
    DEBT MATURITIES
    In a statement in April last year, Adani said global banks
including Barclays  BARC.L , Deutsche Bank  DBKGn.DE , Mizuho
 8411.T , Mitsubishi UFJ Financial Group  8306.T , SMBC Group
 8316.T  and Standard Chartered  STAN.L  reaffirmed confidence
in the Adani group after it was hit by a short-seller attack.
    Spokespersons for the banks declined to comment.
    S&P Global Ratings said in a note on Friday the indictment
could affect investor confidence in Adani group entities,
thereby potentially impairing their funding access and
increasing their funding costs.
    "We believe domestic, as well as some international banks
and bond market investors, look at Adani entities as a group,
and could set group limits on their exposure. This may affect
the funding of rated entities," it said. 
    The rating agency, however, added that the rated entities
have "no immediate and lumpy" debt maturities.
    Some global banks with ties to Adani are parsing through
bond and loan documentations to see if it exposed them to a risk
of default or created a liability if investors decided to demand
their money back, said another banker.
    But there was not a lot of legroom in documentation for
either investors or the bankers to force the company to pay them
back since there was no conviction yet, said lawyers familiar
with corporate bond and loan agreements.
    Om Pandya, a Houston-based capital markets partner at
Clifford Chance, said continued payment of interest by a
borrower would also typically undermine any potential argument
by creditors looking at clauses in loan or bond documentations
to trigger a default.
    The most likely liability facing the banks is civil
liability from investors introduced to Adani through the banks,
said John Joy, managing attorney at FTI Law, a law firm that
specializes in Foreign Corrupt Practices Act (FCPA) violations.
    "Civil litigation is a lengthy process, and it is possible
that during discovery investors could uncover involvement that
has not been disclosed by the SEC (Securities and Exchange
Commission) or DOJ (Department of Justice)," he said.
    Adani has not been arrested yet and U.S. prosecutors would
need to ask the Indian government to extradite him under the
terms of the countries' extradition treaty. Adani could fight
extradition, and it is unclear how long the process might take. 
    "There's been no conviction ... but if you're a risk officer
at a bank with exposure to Adani, maybe you're getting a little
bit nervous," said Ed Al-Hussainy, head of emerging market fixed
income research at Columbia Threadneedle.

 (Reporting by Shankar Ramakrishnan and Davide Barbuscia in New
York; Sumeet Chatterjee in Hong Kong, Anton Bridge in Tokyo and
Sinead Cruise in London; Editing by Sonali Paul)
 ((sumeet.chatterjee@thomsonreuters.com; +852 3462 7757;))