Fitch is putting a number of Adani bonds under scrutiny as Sri Lanka considers the allegations

By Uditha Jayasinghe, Scott Murdoch and Chris Thomas

(Reuters) -Sri Lanka is weighing U.S. bribery allegations against Adani Group and Fitch has put a number of corporate bonds on a watch list for a possible downgrade, as the fallout from charges against some of the Indian conglomerate’s key executives mounts.

U.S. prosecutors have charged billionaire Gautam Adani, the group’s founder, his cousin 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 port operator, owns 51% of a new container terminal project expected to become operational next year in Sri Lanka’s neighboring city of Colombo.

Sri Lanka’s finance and foreign ministries are reviewing the allegations, 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 review the ministerial reports.

The comments came days after a US agency that agreed to lend more than $550 million to Sri Lanka’s port development said it was investigating the impact of bribery allegations against some key Adani executives.

The Adani Group dismissed the allegations as “baseless and denied,” along with allegations made by the US Securities and Exchange Commission in a parallel civil case, adding that it would “take all possible legal action.”

On Tuesday, rating agency Fitch also put an eye on some Adani Group bonds for a possible rating downgrade, citing the complaint.

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

The rating of four senior unsecured dollar bonds of Adani subsidiaries was downgraded from stable to negative, the agency said.

Shares of Adani fell further on Tuesday. Of the 10 listed companies that have lost about $33 billion in market value since the indictment, Adani Green has been the hardest hit, with losses of about $9.7 billion.

The stock fell 7.5% on Tuesday.

A negative view on the ratings signals an increased likelihood of a rating downgrade that could affect the pricing of hundreds of millions of dollars of Adani’s debt.

BUSINESS IMPACT

Fitch will monitor the US investigation for any impact on Adani’s financial position, the company added in the statement on Tuesday.

Specifically, it would look for “any material deterioration in access to finance in the short to medium term, including their ability to roll over existing credit lines or access new facilities, as well as potentially higher credit spreads,” the report said.

Credit rating agency S&P Global has put Adani Ports, Adani Green Energy and Adani Electricity on a downgrade warning because of the US charges.

The responses from the Sri Lankan government and Fitch come a day after French oil giant TotalEnergies said it would suspend financial contributions to its investments in Adani Group following last week’s indictment.

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

However, the Indian conglomerate has received support from one of its major backers, GQG Partners. The Australian-listed investment firm did not see the charges having a material impact on Adani’s businesses, it told clients in a memo.

With the exception of Adani Green Energy, the group does not need to raise capital at this time, it added in the memo, seen by Reuters. But GQG warned that if Adani needed more financing, the indictment would limit his ability to access foreign capital.

Any negative actions by the Indian government could have meaningful consequences for Adani, she added, although she believed the government would maintain support for Gautam Adani.

GQG bought shares worth $1.87 billion in four Adani group companies last year, soon after a short-seller’s critical report sparked a stock frenzy.

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

GQG did not respond to a request for comment.

Adani dollar bonds held steady on Tuesday with prices rising slightly after three days of heavy declines.

Prices of some of Adani Ports and Special Economic Zone’s more liquid debt, maturing between 2027 and 2041, rose between half a cent and 1.5 cents against the dollar. They are down about 8 cents to 12 cents since news of the indictment.

Leading ESG ratings provider Morningstar Sustainalytics said it would assess Adani Green Energy’s ESG risks.

“No company, green or brown, can provide a good investment opportunity without robust governance policies and practices,” Hortense Bioy, head of sustainable investing research, said in an email.

(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)