WEBVTT - The $250 Million Bribery Charges Rocking the Adani Empire – and India 0:00:03.080 --> 0:00:07.800 Bloomberg Audio Studios, podcasts, radio news. 0:00:09.360 --> 0:00:13.040 Lash. Wednesday, Gautamdani, one of the richest people in the world, 0:00:13.400 --> 0:00:14.600 was in good spirits. 0:00:15.360 --> 0:00:17.640 That was the day that the Adani Group Diday six 0:00:17.720 --> 0:00:22.440 hundred million dollar bond placement, a successful bond is shoe. 0:00:22.480 --> 0:00:26.160 That evening, as the Bloomberg story points out, it seemed 0:00:26.160 --> 0:00:29.600 like a normal evening for him. Gotamadani played a card 0:00:29.640 --> 0:00:30.720 game with his wife. 0:00:30.840 --> 0:00:34.880 He went to sleep, but around three am, a colleague 0:00:34.960 --> 0:00:36.800 delivered some shocking news. 0:00:37.159 --> 0:00:39.120 He was woken up in the middle of the night 0:00:39.720 --> 0:00:42.960 to be told that the US has accused him of 0:00:43.000 --> 0:00:47.640 being involved in a bribery, conspiracy of securities fraud, and 0:00:47.760 --> 0:00:51.800 wire fraud, all of which carry both jail time and 0:00:51.920 --> 0:00:57.800 significantly high monetary penalties if found guilty. And yes, but 0:00:57.960 --> 0:01:02.320 probably was a great day for Gotama in hours turned 0:01:02.360 --> 0:01:03.520 into a nightmare. 0:01:04.520 --> 0:01:08.360 Menikadoshi is a Bloomberg senior editor based in Mumbai. She 0:01:08.480 --> 0:01:12.520 says within minutes, senior executives of the Adanni Group gathered 0:01:12.520 --> 0:01:16.600 on conference calls. They spent hours deciding whether they should 0:01:16.600 --> 0:01:18.640 release a statement and what to say. 0:01:19.200 --> 0:01:22.000 There was no immediate reaction from the Adanni group to 0:01:22.040 --> 0:01:25.199 the news. And it's only much later that they did 0:01:25.640 --> 0:01:30.200 issue a denial of all the allegations and the promise 0:01:30.560 --> 0:01:32.440 they would defend themselves vigorously. 0:01:33.200 --> 0:01:37.080 In the meantime, the group's stocks and bonds plunged, wiping 0:01:37.160 --> 0:01:42.160 nearly thirty billion dollars off the conglomerates' market value. The 0:01:42.200 --> 0:01:46.120 Adanni Group's businesses touched many parts of daily life in India. 0:01:46.680 --> 0:01:50.000 Almost half of the country's shipping containers passed through Adanni 0:01:50.040 --> 0:01:53.680 owned ports, and tens of millions of people passed through 0:01:53.680 --> 0:01:58.080 its airports each year. The group also has political influence. 0:01:58.680 --> 0:02:02.279 Its businesses have offer'ill been closely aligned with Prime Minister 0:02:02.400 --> 0:02:06.520 Narndra Modi's priorities and Galta. Madani has been a key 0:02:06.600 --> 0:02:09.320 partner to Modi in his efforts to build the country's 0:02:09.360 --> 0:02:10.680 domestic infrastructure. 0:02:11.200 --> 0:02:15.600 He has or his businesses have a leading position in 0:02:15.760 --> 0:02:23.000 several infrastructure sectors such as sports, airports, logistics, power, and 0:02:23.160 --> 0:02:27.040 he's also the second largest cement manufacturer in the country. 0:02:27.680 --> 0:02:30.040 All of this puts him at the center of India's 0:02:30.120 --> 0:02:31.120 infrastructure store. 0:02:33.639 --> 0:02:37.320 Welcome to the Big Take Asia from Bloomberg News. I'm Wanha. 0:02:37.960 --> 0:02:40.359 Every week we take you inside some of the world's 0:02:40.400 --> 0:02:44.920 biggest and most powerful economies and the markets, tycoons, and 0:02:45.080 --> 0:02:49.359 businesses that drive this ever shifting region. Today, on the show, 0:02:49.800 --> 0:02:53.400 Adani indicted what do the US charges mean for the 0:02:53.400 --> 0:02:57.240 Adani Group and does a case cast doubt on India's 0:02:57.240 --> 0:03:06.960 economy and foreign investments. The indictment, all fifty four pages 0:03:07.000 --> 0:03:11.000 of it, details allegations against Galta Madani and other senior 0:03:11.040 --> 0:03:15.880 executives at Adani Green Energy. In it, federal prosecutors accused 0:03:15.919 --> 0:03:19.960 them of being involved in a complex bribery scheme. We 0:03:20.000 --> 0:03:23.440 asked Menikadoshi, a Bloomberg senior editor based in Mumbai, to 0:03:23.560 --> 0:03:24.520 unpack the case. 0:03:25.040 --> 0:03:30.400 The allegations are that Gautamadani and other co defendants sought 0:03:30.560 --> 0:03:35.080 to bribe several state government officials in India to purchase 0:03:35.200 --> 0:03:39.520 expensive power from the projects that Adani companies and one 0:03:39.600 --> 0:03:42.839 other renewable energy company were developing in India. 0:03:43.000 --> 0:03:46.360 The indictment alleges that the bribery scheme took place in 0:03:46.360 --> 0:03:49.880 India between twenty twenty and twenty twenty four, and that 0:03:49.960 --> 0:03:53.160 Adani and other defendants promised to pay more than two 0:03:53.240 --> 0:03:56.760 hundred and fifty million dollars in bribes to Indian government 0:03:56.760 --> 0:04:02.080 officials to win solar energy contracts. Now, Adani Group doesn't 0:04:02.160 --> 0:04:06.160 trade in the US, but it does have American investors, 0:04:06.760 --> 0:04:10.400 and federal prosecutors alleged that they concealed the plan to 0:04:10.560 --> 0:04:14.839 bribe officials as they try to raise money from US investors. 0:04:15.440 --> 0:04:19.000 And the reason why US prosecutors are allowed to pursue 0:04:19.040 --> 0:04:22.640 these allegations is because of something called the Foreign Corrupt 0:04:22.720 --> 0:04:24.960 Practices Act or the FCPA. 0:04:25.520 --> 0:04:30.239 Under the FCPA and other US laws, if any company 0:04:30.320 --> 0:04:34.560 or entity raises funds in the US but doesn't comply 0:04:34.960 --> 0:04:37.360 with all the terms and conditions that come with being 0:04:37.360 --> 0:04:42.720 able to raise funds, especially indulges in corrupt activities, then 0:04:42.760 --> 0:04:44.880 they can be prosecuted in such fashion. 0:04:45.400 --> 0:04:48.479 And one thing Menica says that stands out about this 0:04:48.640 --> 0:04:52.200 case is the kind of evidence the US authorities claim 0:04:52.320 --> 0:04:56.600 they have and federal prosecutors claim they found a digital 0:04:56.720 --> 0:05:01.080 trail of the alleged bribery scheme, and according to the FEDS. 0:05:01.120 --> 0:05:05.640 They found PowerPoint presentations and records of the bribes that 0:05:05.680 --> 0:05:09.800 the Adanis purportedly wanted to pay Indian state gouvernment officials 0:05:09.800 --> 0:05:12.440 for the off take of power. This in itself is 0:05:12.520 --> 0:05:17.160 quite surprising, many lawyers have told me, because really, who 0:05:17.480 --> 0:05:21.640 does corruption in that organized fashion and would keep evidence 0:05:21.680 --> 0:05:25.680 of it on their everyday communication devices. 0:05:27.320 --> 0:05:30.880 The Adani group has denied the US allegations and has 0:05:30.920 --> 0:05:34.920 said it would seek legal recourse, but what happens next 0:05:35.120 --> 0:05:38.919 is expected to have political as well as business ramifications. 0:05:39.320 --> 0:05:42.599 Galta Madani is a close ally of India's Prime Minister 0:05:42.760 --> 0:05:46.440 Novendramodi and has been a key partner for him, and 0:05:46.600 --> 0:05:50.640 prosecuting this case could take months or even years, which 0:05:50.720 --> 0:05:53.880 means the case may be impacted by the appointment of 0:05:53.920 --> 0:05:57.640 a new US attorney in New York. When President elect 0:05:57.760 --> 0:06:00.800 Donald Trump returns to the White House early next year, 0:06:01.279 --> 0:06:05.479 he'll choose someone new to leave the office prosecuting the case. 0:06:05.920 --> 0:06:09.200 That will be one of the most interesting situations to watch. 0:06:09.400 --> 0:06:13.119 The speed at which these charges were unsealed has surprised many. 0:06:13.880 --> 0:06:17.680 Most it expected that the indictment would take several more months, 0:06:18.600 --> 0:06:21.039 So there does seem to be an element of politics 0:06:21.080 --> 0:06:24.080 in this entire situation. Now the question is, with a 0:06:24.120 --> 0:06:28.120 new administration taking over in the US, will it continue 0:06:28.120 --> 0:06:30.880 to prosecute the case in this fashion or will it 0:06:30.960 --> 0:06:35.880 seek to drop the charges? Lawyers are mixed on what 0:06:35.960 --> 0:06:40.920 could potentially happen, but that will depend on how the 0:06:40.960 --> 0:06:44.560 new President of the United States, Donald Trump views his 0:06:44.680 --> 0:06:48.560 relationship with India, views his relationship with Prime Minister Mody 0:06:49.000 --> 0:06:52.479 and seeks to use whatever leverage he wants to be 0:06:52.520 --> 0:06:56.160 able to get India to play the role he expects. 0:06:56.360 --> 0:06:59.640 They've both been great friends, but that might mean nothing 0:06:59.720 --> 0:07:03.760 for a case of this nature, because in the negotiation 0:07:03.880 --> 0:07:08.039 of two large countries, almost all of these are tools 0:07:08.040 --> 0:07:12.160 that each country will seek to gain leveraged through. Unfortunately, 0:07:12.200 --> 0:07:15.320 for Adani that means he becomes a pawn in the process. 0:07:16.160 --> 0:07:19.559 The Trump transition team didn't respond to requests for comment 0:07:19.600 --> 0:07:24.000 from Bloomberg, and India's government declined to comment. When contacted 0:07:24.040 --> 0:07:26.960 for further information, the White House said. 0:07:26.800 --> 0:07:29.880 The specifics of this this is something that SEC and 0:07:30.000 --> 0:07:33.240 DJ can speak to directly. But again, we believe that 0:07:33.280 --> 0:07:36.360 we are this has been that this relationship between India 0:07:36.400 --> 0:07:39.000 and the US has been built on a strong foundation. 0:07:43.040 --> 0:07:46.280 After the break, how the spotlight on Galta Madani and 0:07:46.360 --> 0:07:51.000 his sprawling conglomate changed when short Sellar Hindenburg Research called 0:07:51.000 --> 0:07:55.360 the Donnis Rise the largest Khan in corporate history. And 0:07:55.400 --> 0:07:57.680 we'll look at what the case against the Adani Group 0:07:57.800 --> 0:08:10.600 could mean for the broader indiannakon. Before these leaders charges 0:08:10.640 --> 0:08:15.360 from US prosecutors galto Madani's rongling empire had been rocked 0:08:15.400 --> 0:08:19.080 by claims that it had manipulated its stock price and 0:08:19.160 --> 0:08:20.600 committed accounting fraud. 0:08:21.200 --> 0:08:23.840 So, just to give the high level understanding of who 0:08:23.880 --> 0:08:26.320 Hindenburg Research is, because it is best known for. 0:08:26.480 --> 0:08:29.600 In a short selling attack. In January twenty twenty three, 0:08:30.040 --> 0:08:34.200 a New York based group called Hindenburg Research accused the 0:08:34.240 --> 0:08:37.240 Adani Group of what they said was the largest Khan 0:08:37.520 --> 0:08:38.480 in corporate history. 0:08:38.720 --> 0:08:41.200 It did disclose a short position in a Dhani Group, 0:08:41.200 --> 0:08:44.800 and what it's saying, Paul, basically is that the conglomerate 0:08:44.840 --> 0:08:48.400 engaged in market manipulation and then accounting fraud as well. Now, 0:08:48.520 --> 0:08:51.840 Gotamdani has denied this and he says that the report 0:08:51.880 --> 0:08:54.800 is baseless, but that hasn't of course, been enough to 0:08:54.840 --> 0:08:56.680 prevent a sell off in the market as well. 0:08:56.760 --> 0:09:00.199 So this time, the duel effect that the Hindenburg Research 0:09:00.400 --> 0:09:04.120 report and short seller attack had on Adani was that 0:09:04.200 --> 0:09:07.600 it decimated his fortunes. At what point in time the 0:09:07.640 --> 0:09:10.680 group had lost over one hundred and fifty billion dollars 0:09:10.679 --> 0:09:11.600 in market value. 0:09:11.840 --> 0:09:13.840 That's Bloomberg's Menikadoshi again. 0:09:14.160 --> 0:09:19.440 But it also hurt his image significantly because it brought 0:09:19.640 --> 0:09:24.120 back into the forefront several questions about corporate governance and 0:09:24.200 --> 0:09:28.599 market manipulation that otherwise had been buried because of his 0:09:28.679 --> 0:09:32.960 so called political proximity to Narate Remodi and other politicians. 0:09:33.360 --> 0:09:37.720 The Hiddenburg report sent the Donni Group's shares into steep decline. 0:09:38.240 --> 0:09:40.960 It took several months for the stocks of the various 0:09:41.080 --> 0:09:45.200 subsidiary companies under a Danni Group to bounce back, but 0:09:45.360 --> 0:09:49.240 Menka says even to this day, the conglomerate itself is 0:09:49.280 --> 0:09:50.839 still in recovery mode. 0:09:51.160 --> 0:09:55.080 After the Hindenburg attack, they did what any smart business 0:09:55.120 --> 0:09:57.160 group would do, which was to cut back on debt, 0:09:57.840 --> 0:10:00.480 raise more funds, and to make sure that they would 0:10:00.520 --> 0:10:03.520 never be in as vulnerable a position as they were 0:10:03.559 --> 0:10:05.400 in January twenty twenty three. 0:10:05.920 --> 0:10:09.240 Earlier this year, Bloomberg sat down with the Adannies for 0:10:09.320 --> 0:10:13.400 an exclusive interview in which Galtemadanni, the group's founder and 0:10:13.480 --> 0:10:18.000 the family patriarch, addressed the Hindenburg report. He says the 0:10:18.040 --> 0:10:21.920 incident brought the family together and made them more united. 0:10:22.640 --> 0:10:28.360 This incident makes family bring more together and work very 0:10:28.400 --> 0:10:32.800 hard to fight it back. And in fact, basically these 0:10:32.920 --> 0:10:38.640 Hindenburg issues of this last year was a Adani group 0:10:38.800 --> 0:10:41.400 history is a high years performance. 0:10:42.120 --> 0:10:45.760 But the Hindenburg report prompted the Justice Department as well 0:10:45.800 --> 0:10:48.160 as the SEC to look into some of the claims 0:10:48.200 --> 0:10:52.839 it contained, and in March Bloomberg reported that US prosecutors 0:10:52.880 --> 0:10:55.800 had widened their probe to look at whether the company 0:10:55.960 --> 0:10:59.080 may have engaged in bribery as well as the conduct 0:10:59.120 --> 0:11:03.960 of Galtum Adonna himself. That probe resulted in these latest 0:11:04.040 --> 0:11:07.880 charges against Galtam Madani and other defendants, his nephew, Sagar 0:11:07.920 --> 0:11:12.040 Adani and Vanit Jane. Both Sagar and Vanit are executives 0:11:12.040 --> 0:11:15.880 at Adanni Green Energy. I asked Menica how the latest 0:11:15.920 --> 0:11:20.040 indictment compares to the Hindenburg allegations. 0:11:19.840 --> 0:11:24.320 Haindenburg and this are chalk and cheese. Haindenberg was an 0:11:24.360 --> 0:11:28.680 aggregation of several allegations that the Adani Group had faced 0:11:28.720 --> 0:11:31.680 over the years, with a few new ones thrown in 0:11:32.080 --> 0:11:35.240 that effectively raised questions that had already been raised in 0:11:35.240 --> 0:11:40.080 India in the past, which were of poor governance standards, 0:11:40.120 --> 0:11:45.280 market manipulation, and fraudulent auditing in that sense. The Hindenburg 0:11:45.360 --> 0:11:49.880 research report, while scandalous because of the way it put 0:11:49.960 --> 0:11:54.319 those questions together, did not necessarily ask of anything very 0:11:54.400 --> 0:11:58.560 new of the Adani Group. This is a whole different 0:11:58.840 --> 0:12:02.280 level of seriousness. These are two of the US's most 0:12:02.280 --> 0:12:09.120 premier investigating agencies accusing Gothamadani of promising to pay bribes 0:12:09.160 --> 0:12:15.000 in India and then lying about that corruption to investors 0:12:15.160 --> 0:12:17.640 across the world, including in the US. 0:12:18.480 --> 0:12:22.920 Following the US indictment, Bloomberg reported that Indian regulators are 0:12:22.960 --> 0:12:27.200 also looking into whether Adani Group violated market rules for 0:12:27.320 --> 0:12:32.160 failing to properly disclose the US investigation, and Menica says 0:12:32.240 --> 0:12:35.280 the US charges could just be the beginning of the 0:12:35.280 --> 0:12:36.600 group's legal troubles. 0:12:37.200 --> 0:12:43.160 Besides what government agencies and regulators will do, these cases 0:12:43.280 --> 0:12:48.920 do provide grounds for investors in various different jurisdictions that 0:12:48.960 --> 0:12:53.280 have invested in various different Dhani companies to stand up 0:12:53.280 --> 0:12:57.480 and ask the question, did you make adequate disclosures? So yes, 0:12:58.160 --> 0:13:01.280 The expectation is that they could be a series of 0:13:01.360 --> 0:13:04.280 lawsuits that the Adani Group might have to face. 0:13:04.840 --> 0:13:07.960 So Menica. Given how serious the charges are, What does 0:13:07.960 --> 0:13:11.040 this case mean for companies in India? Is this like 0:13:11.080 --> 0:13:12.720 an indictment on corporate India. 0:13:13.160 --> 0:13:16.000 It definitely doesn't make Corporate India look good, but it's 0:13:16.040 --> 0:13:19.320 not an indictment of Corporate India. Given the significance of 0:13:19.360 --> 0:13:23.640 the infrastructure sector in India's growth story, and given how 0:13:23.720 --> 0:13:26.560 core the Adani Group is to the role out of 0:13:26.600 --> 0:13:30.720 infrastructure in the country, this episode will be significant to 0:13:30.760 --> 0:13:34.560 the fortunes of both the economy and the sector. What 0:13:34.600 --> 0:13:38.600 this does do is hurt India at a time when 0:13:38.640 --> 0:13:42.000 the country is seeking to take its story to a 0:13:42.040 --> 0:13:45.920 wider set of global investors, as it makes efforts to 0:13:45.960 --> 0:13:48.640 go from the fifth largest economy in the world to 0:13:48.679 --> 0:13:52.400 the third largest economy, and as it also makes efforts 0:13:52.400 --> 0:13:57.400 to become a developed nation over the next twenty years. 0:13:58.280 --> 0:14:02.880 At a time when you are quoting foreign investors, episodes 0:14:03.040 --> 0:14:08.160 like this don't help your narrative at all. Will this 0:14:08.320 --> 0:14:10.640 mean investors will run away from India? 0:14:10.840 --> 0:14:11.040 No? 0:14:12.000 --> 0:14:14.880 Will this mean that some investors will say there is 0:14:14.920 --> 0:14:19.280 an additional risk premiere for doing business in India? Probably yes. 0:14:20.000 --> 0:14:22.440 Will this mean that some investors will now want to 0:14:22.480 --> 0:14:27.120 stay away from infrastructure sectors that have significant government intervention. 0:14:27.840 --> 0:14:32.320 Absolutely so it will have a graded impact on both 0:14:32.440 --> 0:14:35.200 the business sector in India as well as the economy. 0:14:35.720 --> 0:14:38.240 Nothing will happen in absolute You won't see a sudden 0:14:38.240 --> 0:14:40.880 flood of money out. You won't see people give up 0:14:40.960 --> 0:14:44.240 on India because most investors want to go where growth is. 0:14:44.760 --> 0:14:48.480 But you will see a moderation in their enthusiasm towards 0:14:48.520 --> 0:14:51.840 the country, at least for a while as they digest 0:14:51.880 --> 0:14:53.440 the seriousness of this situation. 0:14:58.440 --> 0:15:01.280 This is the Big Take Asia from Bloomberg News. I'm 0:15:01.360 --> 0:15:04.720 wan ha. If you're interested in hearing more about Indian 0:15:04.720 --> 0:15:08.360 billionaire Galta Madani and his brawling empire, check out our 0:15:08.400 --> 0:15:11.680 previous episode on the rise of the Donni Group called 0:15:11.800 --> 0:15:15.400 two hundred Billion Dollars, four Airs and One Mighty Empire. 0:15:16.000 --> 0:15:17.840 It's linked in our show notes and you can find 0:15:17.880 --> 0:15:21.000 it on the Big Take Asia feed. This episode was 0:15:21.040 --> 0:15:24.280 produced by Young Young Naomi Mum and Jessica Beck with 0:15:24.360 --> 0:15:27.680 help from Roehead Potok. It was mixed by Alex Suguiera 0:15:27.800 --> 0:15:31.200 and fact checked by David Fox and Adriana Tapia. It 0:15:31.240 --> 0:15:34.640 was edited by Caitlin Kenny, Jeanette Rodriguez and Buma Shrivastov. 0:15:35.400 --> 0:15:39.000 There was additional reporting by Kai Schultz, Buma and Anto Antony. 0:15:39.640 --> 0:15:42.880 Naomi Shaven is our senior producer, Elizabeth Ponso is our 0:15:42.920 --> 0:15:46.840 senior editor, Nicole Beemster Broer is our executive producer, and 0:15:46.880 --> 0:15:51.000 Sage Bauman is Boomberg's head podcasts. Please follow and review 0:15:51.000 --> 0:15:53.960 The Big Take Asia wherever you listen to podcasts. It 0:15:54.000 --> 0:15:57.080 really helps new listeners find the show. See you next time.