Adani hit by downgrades as projects under review in India, Sri Lanka

By Uditha Jayasinghe, Scott Murdoch and Chris Thomas

(Reuters) -Adani Group's troubles deepened on Tuesday as two more credit rating agencies cut their outlook for the Indian conglomerate, whose billionaire founder Gautam Adani has been charged by U.S. authorities over an alleged $265 million bribery scheme.

The U.S. indictments' widening fallout comes after S&P on Friday put Adani Ports, Adani Green Energy and Adani Electricity on a downgrade warning and as partners reviewed individual projects involving the group.

India's Andhra Pradesh is likely to suspend a power purchase deal linked to the group, two state government sources said, in what would be the first such move by an Indian state government after the U.S. charges over solar power-supply contracts.

Most of the alleged bribes were paid to a government official to get Andhra Pradesh's state electricity distribution companies to agree to purchase power, the U.S. indictment said.

The allegations are having a knock-on impact across the Adani empire as Moody's Ratings lowered its outlook for seven Adani firms, including Adani Ports and Adani Green, to negative from stable, saying the U.S. indictments will likely weaken the group's access to funding and increase its capital costs.

Ratings agency Fitch earlier put some Adani Group bonds on watch for a possible downgrade, also citing the U.S. indictment, while Sri Lanka said it was reviewing any potential fallout for the Indian group's projects in the neighbouring island nation.

A U.S. agency that agreed to lend more than $550 million to a Sri Lankan port development said on Sunday it was reviewing the impact of the bribery accusations against Adani, his nephew Sagar Adani and six others over the alleged scheme to bribe Indian officials to secure power supply deals.

The Adani Group has denied the allegations, as well as those made in a parallel civil case by the U.S. Securities and Exchange Commission, but news of the indictment has wiped $34 billion off the value of shares in 10 companies owned by the Indian giant.

Adani stocks deepened losses on Tuesday, with Adani Green the hardest hit, closing 7.3% lower.

Fitch said in a statement it had placed Adani Energy Solutions Ltd, Adani Electricity Mumbai and some of Adani Ports and Special Economic Zone rupee and dollar bonds on "watch negative", signalling a heightened probability of a downgrade that could affect the price of Adani debt.

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

Sri Lanka's finance and foreign ministries were reviewing the allegations, cabinet spokesperson Nalinda Jayatissa told reporters on Tuesday, adding that the government would take a decision once the ministries had compiled their reports.

Fitch also downgraded its ratings on four Adani subsidiary senior unsecured dollar bonds from stable to negative, saying it will monitor for any impact on the group's financial position and watch for "any material deterioration" in its funding, including rolling over credit lines, accessing new facilities and potentially a rise in the cost of its debt.

BUSINESS IMPACT

Adani Green responded on Tuesday to TotalEnergies saying it would halt investments in Adani firms, saying there was no new financial commitment under discussion and that the French oil major's decision would not have any material impact on the company's operations or its growth plans.

Meanwhile, Adani Enterprises, Adani's flagship firm, and Singapore-based Wilmar International, will delay a proposed sale of at least 12% in their Adani Wilmar Indian food joint venture, Bloomberg News reported.

Adani and Wilmar did not immediately respond to a request for comment. Shares in the joint venture closed 2.3% lower.

One of Adani Group's main backers, Australia-listed investment firm GQG Partners said in a memo to clients which was seen by Reuters that it not see the indictments having a material impact on Adani businesses.

Except for Adani Green, the group does not need to raise capital at this point, it added, although if Adani did need more funding, the indictment would limit its access to 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 bought 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 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 debt maturing between 2027 and 2041 were up between half a cent and 1.5 cents on the dollar. They have fallen about 8 to 12 cents since news of the indictment.

(Reporting by Scott Murdoch, Praveen Menon in Sydney and Tom Westbrook in Singapore; Additional reporting by Chris Thomas and Angela Christy in Bengaluru, Isla Binnie and Anton Bridge; Editing by Clarence Fernandez, Sumeet Chatterjee and Alexander Smith)