US bribery case against Adani is bad news for Modi

The US Justice Department's criminal charges against Gautam Adani pose the biggest threat yet to the Asian tycoon's $169 billion empire. More importantly, though, it's also a missed opportunity for India's opposition, an unexpected gift to President-elect Donald Trump, and an all-around embarrassment for Prime Minister Narendra Modi.

The 54-page indictment alleges that Adani Green Energy Ltd.'s mega 2020 order from Solar Energy Corporation of India had a problem — there were no takers for the expensive power, which jeopardized the lucrative contract. That, the DOJ says, gave rise to a corrupt scheme "to pay over $250 million in bribes to Indian government officials, to lie to investors and banks to raise billions of dollars, and to obstruct justice." The case is against group Chairman Gautam Adani, his nephew Sagar, who is executive director of the green-energy business, and six other individuals. The conglomerate denied the allegations as baseless and said it's fully compliant with all laws. "All possible legal recourse will be sought," the group said in a statement.

The news about the court filing came hours after the end of assembly elections in the western state of Maharashtra, home to India's financial capital Mumbai. Opposition leader Rahul Gandhi had made crony capitalism — especially Adani's proximity to Modi — the central piece of his campaign, particularly in the Maharashtra poll. Which is what makes the timing of these charges unfortunate for him.

Adani, who owns the two Mumbai airports and supplies electricity to the city, will soon start redeveloping its biggest shantytown. Gandhi and his allies have alleged that the terms of the controversial $3 billion project were sweetened for Adani by the state government, which is controlled by Modi's party. Neither Adani nor Modi has responded to the allegations. A change in the local administration might lead to a fresh tender.

The outcome of the Maharashtra vote is already sealed. Votes will be counted Saturday, though exit polls suggest that Gandhi's challenge to dislodge the government probably failed in a close contest. 

For Trump, though, the indictment couldn't have come at a better time. His incoming administration will bargain with India for greater market access, especially for US tech firms, from a position of strength. The Adani Group is yet to comment on the charges, although an early settlement would allow the sprawling conglomerate to continue to access its most-important raw material: debt financing.

Adani's stocks and bonds are already tumbling. For bankers to take an Adani loan file to the risk committee, the overhang of criminal charges against Gautam and Sagar, who's part of an elaborate succession plan, must first go away.

This is also what Modi will want. The indictment is the biggest blowback against him yet from the ever-expanding corporate-governance saga that has engulfed the infrastructure behemoth. Adani is the prime minister's longtime friend, and neither Modi's government nor the ruling party shied away when New York-based Hindenburg Research accused Asia's second-richest man of  "pulling the largest con in corporate history" in January last year.

That turned out to be a manageable crisis. The group strenuously denied the short seller's allegations of stock manipulation and accounting fraud, and the storm appeared to blow over. The conglomerate's market value doubled from the low it hit in February 2023, following a $150 billion-plus selloff.

By comparison, the DOJ's charges are grave. The indictment alleges that Indian state governments weren't too keen to buy 12 gigawatts — eight from Adani and four from US-listed Azure Power Global Ltd. — of what they perceived to be expensive power. According to the court filing, Gautam and Sagar Adani and Ranjit Gupta, the then-chief executive of Azure, among others, "devised a scheme to offer, authorize, make and promise to make bribe payments" to government officials in India so they would be persuaded to purchase the electricity.

The two groups worked out their respective shares of the bribes, the DOJ noted. Adani and its officers allegedly "relied on the US financial system to perpetuate this fraudulent scheme." They did this by seeking and securing investors and potential investors physically located in the US and causing wires to be sent and received that passed through New York, the indictment said.

The echoes of the case will reverberate through India. So far it's mostly Gandhi pounding the tables. For regional opposition leaders, Adani's link with Modi hasn't exactly been a hot-button issue.

That was also the case when in a fresh report in August, Hindenburg alleged that Madhabi Puri Buch, head of the Securities and Exchange Board of India, had a potential conflict of interest, raising doubts about the objectivity of SEBI's ongoing probe into Adani. Buch and the regulator denied the accusations, and the SEBI chief skipped a scheduled appearance before a lawmakers' committee in October. 

But the fresh US charges change everything. The indictment alleges that Adani has concealed the "bribery scheme" from investors and financial investors since at least March last year, when Federal Bureau of Investigation agents served Sagar with a search warrant in the US. 

While concepts like conflicts of interest — or alleged breaches of securities law — require a modicum of financial training, bribery is something every politician understands. Almost $228 million, the DOJ says, was offered to just one person, identified in the court filing as Foreign Official #1 from the southern state of Andhra Pradesh. There's plenty here for a full-blown domestic scandal. If this affair drags out, Modi's own Bharatiya Janata Party may wonder how long it should support a prime minister who at 74 is unlikely to lead it to the 2029 election.

In other words, Gandhi's intuition to stick to the alleged Modi-Adani nexus as a talking point in election campaigns may have been vindicated. In a press conference Thursday, the Congress Party leader called for Buch's removal and Adani's arrest. While the DOJ indictment came too late to sway the vote in Maharashtra, it may yet cast a long shadow — both on India's national politics, and relations with Washington next year. 

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. 

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement