'Sound Fundamentals...' GQG Partners Reaffirms Confidence In Adani Group Firms

Boutique investment firm GQG Partners has reiterated its confidence in Adani group companies amid an indictment of the Indian group's promoters in an alleged bribery case in the US.

On a five-page memo released after US prosecutors accused group chairman Gautam Adani and seven others, including his nephew Sagar, of being part of a scheme to pay USD 265 million bribes to Indian officials to secure solar power supply contracts, GQG said the indictment is of the employees and not the company.

"We recognise the distinction of the allegations of the individuals vs the companies. We believe the fundamentals of the companies we are invested in remain sound," GQG said.

GQG Partners had emerged as a white knight for the group during troubled times following the allegations by short-seller Hindenburg Research in January 2023, which led to a sharp loss in the market value of Adani companies.

Beginning in March 2023, it bought shares in as many as seven of the listed Adani group firms. These included Adani Enterprises Limited, Adani Ports and Special Economic Zone Limited, Adani Green Energy Limited (AGEL), Adani Energy Solutions Limited,  Ambuja Cements Limited, Adani Power Limited and Adani Total Gas Limited.

The asset manager said its exposure to the ports-to-power conglomerate stood at USD 8.1 billion, only 5.2 per cent of its total assets of nearly USD 157 billion as of November 21.

"We believe this level of exposure is manageable, even given the volatility in Adani Group stocks," it added.

Stating that each of the companies it has invested in are independently listed businesses with separate management and revenue drivers, GQG said since investing, it has seen strong fundamental growth in these businesses, resulting in meaningful earnings growth.

"These companies manage critical infrastructure for one of the world's fastest-growing economies. On a fundamental business case, we continue to believe each individual company is well-positioned for the future," it said. "Our investments in Adani as of November 21 have had positive returns in aggregate for our portfolios."

On the charges of Adani and seven others paying bribes to Indian government officials between 2020-2024 to obtain solar energy supply contracts, GQG said the indictment and action are against individuals only. "The allegations relate only to AGEL, not other Adani companies."

"While the allegations are serious, there are many examples of global companies and their executives who have faced significant government action, including Foreign Corrupt Practices Act (FCPA) violations. Some notable examples include Wal-Mart, Oracle, Thales, Siemens, Glencore, Petrobras, Pfizer, Toyota, Honeywell, Airbus, and SAP," it said, adding that these actions and investigations typically take years to resolve and may yield reduced penalties or fines.

The companies continued to operate in the interim, looking to improve their business practices and move their businesses forward.

"The indictment is happening during a period of transition for the US federal government, which means the case will likely continue under a new Justice Department, appointed by the Trump administration," GQG said. "We feel the Indian government will maintain its support for Gautam Adani as he is the most important infrastructure developer in the country by order of magnitude."

GQG did not see the US actions as having a material impact on businesses.

Adani businesses operate critical infrastructure regulated by the Indian government. In most cases, these are services with long-term contractual revenues.

"Except for AGEL, we understand that the Adani companies do not need to raise more capital at this point. If they do need additional financing, this cloud will restrict their ability to access foreign capital. However, there are currently no signs of domestic banks, especially India's government-owned banks, of shutting off credit to the Adani group," it said, adding these companies will keep operating even if individuals receive fines or sanctions.

The investment group said it will remain diligent in re-underwriting its positions and examining any new facts.

"While we do not anticipate this, any negative actions by the Indian government could have meaningful implications," it said. "We are taking appropriate steps with respect to our funds. For example, our Valuation Committee has met each day to review valuations of these holdings."

GQG said as investors in a broad area of companies, globally, it takes any indictment very seriously.

"That said, we recognise the distinction of the allegations of the individuals vs the companies. We believe the fundamentals of the companies we are invested in remain sound. As we do with other holdings, our team continues to do research and reassess the situation, but as of now, we have not changed our view on the prospects for these investments. That may change as new information becomes available."

It believes that Indian regulators are unlikely to take action in this matter given the thorough review of Adani Group following the Hindenburg allegations. "However, we will be monitoring any developments closely."

Adani group denied all the US allegations, calling them baseless and that all possible legal recourse would be sought.