Japanese banks sticking with Adani as Jefferies, Barclays review ties

JAPAN’S biggest banks plan to maintain ties to billionaire Gautam Adani despite US bribery charges, even as other global firms including Barclays are reassessing their exposure to the Indian conglomerate.

Mizuho Financial Group expects the latest saga surrounding Adani will not have a long-lasting impact and intends to continue supporting the group, according to sources familiar with the matter. Sumitomo Mitsui Financial Group (SMFG) and Mitsubishi UFJ Financial Group (MUFG) also have no plans to pull back and will be open to fresh financing if needed later, sources familiar with the matter said.

Tokyo-based spokespeople for all three lenders declined to comment. An Adani Group representative did not comment immediately.

The Japanese support underscores the divide among finance firms over Adani after he and others were charged with plotting a US$250 million scheme to bribe India government officials to win solar energy contracts. Adani’s massive ports-to-power group has denied the charges and called the allegations baseless. Its representatives have been meeting with lenders and investors to reassure them and explain its stance on the matter.

While it’s unlikely there will be new financing requests by the group for now, some global banks that are concerned about reputational risk are curbing their exposure to one of India’s biggest conglomerates. The capital-rich Japanese lenders take comfort that they are backing cash-generative assets. Adani has strong government ties and any legal processes brought by the US will take a long time, according to the sources familiar.

“Drawing from their experiences in South-east Asia in the ‘90s, Japanese banks have developed sophisticated frameworks for evaluating emerging-market risks,” Ben Charoenwong, an assistant finance professor at Insead in Singapore, said about the lenders’ risk tolerance in the aftermath of the Asian Financial Crisis. “Banks such as MUFG and SMBC, which view India as a crucial growth market, are unlikely to substantially reduce their overall India exposure” though they may tighten processes or raise risk premiums for certain deals.

Meanwhile, Barclays, which has long been a go-to bank for Adani, has suspended extending new loans or financing to the group for now, according to sources familiar with the matter.

The British lender had been gradually decreasing its exposure in direct lending and bond underwriting since short seller Hindenburg Research took aim at the company last year, Bloomberg News earlier reported. Still, it provided part of a US$394 million trade-finance facility last year to an Adani unit for a solar module plant. Earlier this year, Barclays was among bookrunners for a US$409 million bond sale by Adani Green Energy.

A Barclays spokesperson declined to comment on its exposure to Adani or the status of its relationship with the group.

Jefferies Financial Group, which stood by Adani after Hindenburg accused the conglomerate of fraud, has not discussed new dealings with the group after further accusations surfaced following the US indictment, according to sources familiar with the matter. The bank has not made a formal decision on whether to pause or halt deals, and is awaiting a firm outcome from the charges before engaging in new business, the sources said.

Jefferies held some Adani shares temporarily on its balance sheet as a market maker, but not as an investment in the firm, the sources said. The Adani Group represents less than 4 per cent of Jefferies’s India business, they added.

The India arm of Jefferies last year brokered a US$1.9 billion sale of shares in four Adani Group companies to GQG Partners, a Florida-based investment firm. More recently, Jefferies was a lead manager as the flagship Adani Enterprises and other companies raised US$500 million from stock sales last month.

A representative for the New York-based firm declined to comment.

Meanwhile, at least two other major US banks that were aiming to grab a small share of debt funding from the Adani group in recent months have now put those efforts on hold, according to sources familiar.

Japan’s biggest lenders, which recently raised their annual profit forecasts to fresh records, feature prominently in some of the biggest overseas bond deals this year by Indian companies, including Adani Group, data compiled by Bloomberg show. Most recently, they were among the arrangers of a planned US$600 million bond sale by Adani Green that was cancelled after the charges became public.

Mizuho is not too concerned about the current investigation and has no intention of pulling back from the group, which has not reneged on any payments, the sources familiar said. Mizuho has helped finance Adani units running ports and airports, which are steady cash generators.

Sumitomo and Mitsubishi UFJ are confident in the companies’ ability to repay borrowings and don’t expect the businesses to be affected much, the sources said.

Like their Japanese peers, some Middle East banks such as Emirates NBD Bank are equally unfazed about their relationship with Adani, the sources said. They have no plans to pull back from existing commitments and will lend fresh money for future projects on the back of their regular diligence processes, the sources said, adding that their capital was committed to good assets in the Adani portfolio. Emirates NBD declined to comment.

“Japanese and Middle Eastern banks, with access to relatively low-cost capital, are actively exploring global growth and diversification opportunities,” said Ashutosh Mishra, head of research at the institutional desk of Ashika Stock Broking. “This creates a synergistic fit with asset-heavy Indian conglomerates such as Adani, which offer a robust growth outlook.”

Stock tumbles

Adani’s dollar bonds and stocks tumbled immediately following the indictment, indicating investors were spooked about rising risk. In the past week, S&P Global Ratings, Moody’s Ratings and Fitch Ratings have all lowered their credit outlooks on some Adani companies to negative from stable. S&P cited funding access and financing-cost concerns. Fitch also said it may cut its rating on Adani Ports & Special Economic Zone’s dollar bonds to junk.

Companies in other sectors are also reassessing their ties to Adani. TotalEnergies said it won’t make any fresh investment in the group until the consequences of the US indictments have been clarified. Kenya meanwhile cancelled two Adani contracts worth about US$2.6 billion in the wake of the charges.

Adani Enterprises’s shares tumbled 23 per cent on Nov 21 following the US move, but have since recouped some of those losses. The stock rallied this week after the company said Gautam Adani and his aides have not been charged under the US Foreign Corrupt Practices Act. BLOOMBERG