Given the high level of transparency in renewable energy tenders conducted in India, the potential for corruption and bribery for Adani Group is “highly unlikely”, JP Morgan said, but maintained its views on the conglomerate.
JP Morgan's comments come after a Bloomberg report alleging that prosecutors from the US Attorney's Office and the Department of Justice (DoJ) are investigating an Adani Group company and Azure Power Global for possible bribery investigations. The global brokerage firm said in its latest statement that it has reviewed the legal basis of such investigations and the potential impact.
“As there are very few details overall and the investigation itself may not result in a successful prosecution, with likely limited potential financial/fundamental impact, we are making no changes to our recommendations for Adani Group at this time. For Azure Power, we are moving to neutral due to high valuations amid the hustle and bustle,” JP Morgan said.
The news article highlights an Adani Group company that may have been involved in “paying officials in India for preferential treatment on an energy project.”
“Based on the profile of USD bond issuers in the group, this could be related to Adani Green Energy (NS:ADNA). The association with Azure Power in the same article is intended to indicate this,” the report says.
Notably, there is a 12 GW production solar power project signed with SECI (Solar Energy Corporation of India) in January 2020 by both Adani Green (8 GW allocation) and Azure Power (4 GW).
What JPMorgan says
Details about the case are scarce and possible criminal prosecution is not possible. According to the details, the prosecution could relate to the 12 GW solar energy project related to production, which Adani and Azure Power have with Solar Energy Corp. of India was signed. However, this project is not linked to group bonds from either company. Estimated to have no material impact on the company's finances. The extent of significant corruption is unlikely given the high transparency of renewable energy tenders in India. Adani Ports & Special Economic Zones Ltd. has managed to secure a $553 million loan from the US government's Development Financial Arm for its Colombo Port project, which may be an indication that the company has followed scrupulous practices.
“This project is still under construction and is not part of any of the restricted group bonds of these two companies,” the report said.
JPMorgan's take on Adani Group's dollar bonds
“Overweight” on all bonds of Adani Ports & Special Economic Zones. “Overweight” on Adani Transmission. “Underweight” on Adani Green Energy. “Neutral” at Adani Renewable Energy. “Neutral” on Adani Enterprises Ltd. dollar bonds. “Neutral” on Adani Electricity Mumbai Ltd. dollar bonds
Assuming this is related to the companies' renewable energy project, “we believe, overall, that such provisions are unlikely to have a material financial impact, even if the reported investigation proceeds to the prosecution phase and a case of bribery is subsequently identified.” “.
“Given the high level of transparency in various renewable energy tenders in India, we believe the potential for significant corruption and bribery to be highly unlikely.”
On Azure Power, the company said: “We remain comfortable with the fundamentals as the recent bond repurchase (as set out in the bond agreements) underscores the continued good operating cash flows of the two RG bonds.”
