6 reasons why JP Morgan isn’t buying the ‘bribery charge’ against Adani Group

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With the high level of transparency involved in renewable energy tenders floated in India, the scope for corruption and bribery looks “highly unlikely” for the Adani Group, JP Morgan said while sticking to its views on the conglomerate.

JP Morgan comments come post a Bloomberg report that claimed prosecutors from the US Attorney Office and Justice Department (DoJ) are looking at an Adani Group entity and Azure Power Global around potential bribery investigations. The global brokerage firm said in its latest note that they looked at the legal basis of such investigations and the potential impact.

“Overall, as details are very scant and the investigation itself might not lead to any successful prosecution, with likely limited potential financial/fundamental impact, we do not make changes to our recommendations at this stage for the Adani Group. For Azure Power, we move to Neutral due to tight valuations amid the noise,” said JP Morgan.

The news article highlights an Adani Group entity that was potentially involved in “paying officials in India for favorable treatment on an energy project”.

“Based on the profile of USD bond issuers from the group, this could be related to Adani Green Energy (NS:ADNA). The association with Azure Power in the same article also reportedly points to this,” according to the report.

Notably, there is one 12GW manufacturing-linked solar energy project that was signed by both Adani Green (8GW allocation) and Azure Power (4GW) with SECI (Solar Energy Corporation of India) in January 2020.

What JPMorgan says
Details about case are scarce, no potential prosecution.
Based on the details, prosecution could be related to the 12 GW manufacturing-linked solar energy project, which was signed by Adani and Azure Power with Solar Energy Corp. of India. However, this project isn’t linked to any restricted group bonds from either company.
Estimating anti-bribery provisions under the U.S. FCPA, no material impact on the company’s finances.
Scope of significant corruption is unlikely if the high transparency of renewable energy tenders in India is taken into account.
Adani Ports & Special Economic Zones Ltd. has managed to get a $553 million loan from its Colombo Port Project from the U.S. Government’s Development Financial Arm, which can indicate the company has adhered to diligent practices.

“This project remains under construction and does not form part of any of the Restricted Group bonds from these two entities,” the report mentioned.

JPMorgan’s view on Adani Group’s dollar bonds
‘Overweight’ across all bonds on Adani Ports & Special Economic Zones
‘Overweight’ on Adani Transmission
‘Underweight’ on Adani Green Energy
‘Neutral’ on Adani Renewable Energy
‘Neutral’ on Adani Enterprises Ltd. dollar bonds
‘Neutral’ on Adani Electricity Mumbai Ltd. dollar bonds

Overall, assuming this is related to the renewable energy project of the companies, “we believe such provisions are highly unlikely to lead to a material financial impact even if the reported investigation moves to the prosecution stage and thereupon establishment of an instance of bribery”.

“Given the high level of transparency involved in various renewable energy tenders floated in India, the scope for significant corruption and bribery looks highly unlikely to us”.

On Azure Power, the firm said that “we remain comfortable on the fundamentals here, where the recent bond buyback (as stipulated in bond covenants) highlights continued good operating cash flows at the two RG bonds”.



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