International banks could have grounds to demand immediate repayment of their loans to Adani Green Energy following a US indictment against some key executives.
On November 21, Adani Group chair Gautam Adani and seven other defendants, including his nephew and executive director of Adani Green, Sagar Adani, were indicted in a New York court in relation to allegedly agreeing to pay over US$260m in bribes to Indian officials to obtain power supply contracts in a scheme that began "in or about 2020," according to the indictment document.
Adani Group denied the charges and called them “baseless”.
According to the Department of Justice indictment, FBI special agents on March 17 2023 seized electronic devices from Sagar Adani while executing a search warrant. At the same time they served him with the warrant, which identified the offences, people and entities under investigation by the US government.
The group’s subsequent disclosures to international lenders did not make this clear, and some bankers think that, and other communications between the borrower and financial institutions, gives them grounds to call in their loans.
On March 15 this year, a Bloomberg news article claimed that US authorities were investigating alleged bribery by people linked to an Adani Group entity, including Gautam Adani.
“The company states that it has not received any notice from the Department of Justice of US in respect of the allegation referred to in the said article,” Adani Green said in a stock exchange statement issued in response. “The company is aware of an investigation by the United States Department of Justice into potential violations of United States anti-corruption laws by a third party.”
In the prospectus for its US dollar bond priced on March 4 this year, Adani Green wrote in the 56-page risk factors section: “AGEL, its operations and projects in India and its officers and/or personnel are subject to or exposed to present inquiries and investigations under the anti-bribery or anticorruption laws of other countries (such as the US Foreign Corrupt Practices Act).”
According to the DOJ indictment, on July 24, employees from one of the international banks had a call with Adani Group’s head of corporate finance, who is identified in the indictment as Individual #2, regarding the news article and the bond circular. During the call, Individual #2 said that no entity or individual within the Adani Group had been approached by any US authority with regard to any investigation into the group or its affiliates – but said that Adani Group was not willing to provide further written representations to that effect.
“These false statements concealed both the United States government’s investigation and the bribery scheme from investors and financial institutions, all to ensure the conglomerate’s and the Indian energy company’s continued access to capital in the United States and elsewhere, in furtherance of the fraud scheme,” the DOJ indictment reads.
The borrower had also stated in the facility agreement of a US$1.35bn syndicated loan for four subsidiaries that neither the project companies nor any affiliates or their representatives would pay or approve bribes to government officials – a statement that the DOJ argues was a misrepresentation. One of the lenders subsequently sold US$70m of its US$325m commitment to two asset management companies, one of which was headquartered in New York, and the buyers relied on the facility agreement as part of their due diligence process.
If the details of the DOJ indictment are accurate, lenders could argue that the terms of the facility agreement have been breached and demand immediate repayment.
In Asia, the Asia Pacific Loan Market Association's standard loan documentation is usually used as a starting point for facility agreements. Typically, the APLMA standard includes an event of default if there is a material adverse change and representations that no litigation has been started against the borrower group that would have a material adverse effect if adversely determined.
Repeat representations
“Borrowers typically make representations at the time of entry into a loan agreement, some of which repeat at the time of drawing new funds and at the start of each new interest period,” said a Singapore-based lawyer.
“Borrowers will look to ensure that certain representations, such as the accuracy of financial projections, do not repeat, but representations as to the absence of material litigation typically either do repeat or are included as an ongoing covenant which, if breached, will trigger a default.”
Under the APLMA standard, agreement from two-thirds of lenders is typically needed to trigger an event of default and accelerate the loan.
"The lender group would need to notify the borrower of its intended course of action," said Soumitro Mukerji, partner in DLA Piper's finance practice based in Singapore. "The course of action the lenders take may also vary from cancelling existing commitments, making loans repayable on demand, demanding immediate repayment and/or enforcing the credit support (if any)."
Acceleration has rarely, if ever, been triggered on an Asian syndicated loan, except when borrowers have defaulted on payments.
“The acceleration mechanism is contractual and doesn’t itself involve a court or arbitration,” said an arbitration lawyer. “Lenders will need to assess the impact of acceleration. Often this is seen as a last resort.”
No choice but patience
An added complication is that, depending on specific loan covenants, an acceleration could trigger cross-defaults in other loans within the borrower group.
International banks are considered unlikely to demand immediate repayment of loans made to the Adani Group.
“As far as existing exposure is concerned, lenders have no choice but to show patience and hope for a resolution, but new borrowings are out of the question for the foreseeable future,” said a senior loan banker in Singapore. “There is no doubt every lender is reviewing the situation, but no one will pull the trigger – at least not yet – to force the group to pay back their loans.”
Barclays, BNP Paribas, DBS Bank, Deutsche Bank, ING Bank, Intesa Sanpaolo, Mizuho Bank, MUFG, Rabobank, Siemens Bank, Standard Chartered and Sumitomo Mitsui Banking Corp were the mandated lead arrangers and bookrunners of the US$1.35bn four-year green loan that has a portion outstanding that falls due in March 2025.
Among the other lenders participating were Bank of the Philippine Islands, Bayfront Infrastructure Management, Hong Kong Mortgage Corp and Societe Generale, according to LSEG LPC data.
Adani Hybrid Energy Jaisalmer One, Adani Hybrid Energy Jaisalmer Two, Adani Hybrid Energy Jaisalmer Three and Adani Hybrid Energy Jaisalmer Four are the borrowers of the loan, which initially financed 1.69GW of hybrid solar and wind farms under four project vehicles in the western Indian state of Rajasthan.
It is not clear how many of the 16 lenders still have exposure on the outstanding loan.
“It is arguable if the charges and recent developments constitute a material adverse change and one would have to be in a very strong legal position to invoke the clause,” said a second banker in Singapore.
Certain protections are available to borrowers such as a materiality threshold, and they may also argue that they are the target of vexatious litigation, said the Singapore-based lawyer. "This may allow the borrower to invoke cure periods, typically negotiated having regard to jurisdiction-specific court processes," she said. "In some jurisdictions like Singapore, courts can make an efficient determination on whether any given litigation is vexatious, but this may take longer in some other jurisdictions."
A third senior loan banker in Singapore pointed out that while it might seem that international lenders are not taking any action, the reality is that the matter is under review and scrutiny at the highest levels of the banks with exposure to the group.
Contracts at risk
According to a banker familiar with the structures of the project financings for the group, the borrowings are financed initially by the bank markets that bear the construction risks of the projects, which are then refinanced with a capital markets takeout (mostly a foreign currency bond) once the power plants become operational. The takeout would provide the project with size, tenor and attractive pricing.
Adani Green's US$600m bond pulled on November 21 was meant to be one such exercise with Adani Hybrid Energy Jaisalmer One, Adani Hybrid Energy Jaisalmer Two and Adani Solar Energy Jaisalmer One – known collectively as Hybrid (Solar and Wind) Renewables – as the issuers.
Meanwhile, the government of Andhra Pradesh, a state in southern India, is reviewing government files and will explore if it is possible to cancel a power supply contract linked to the Adani Group, Reuters reported on November 26.
The issue raises questions around the validity of Adani Green Energy’s offtake contracts – a key consideration for lenders that have funded the construction of the group’s power projects.
According to a senior loan banker familiar with the structures, Adani Green has power purchase agreements with the Solar Energy Corp of India, which in turn has power supply agreements with electricity boards in the states in India.
Should Andhra Pradesh terminate its PSA with SECI, this could have an impact on SECI's PPA with Adani Green Energy and potentially affect the latter's cashflows. Other states could also reassess their power contracts involving the Adani Group.
While international lenders are unlikely to fund any new borrowings for Adani, they expect it is a matter of time before the situation returns to normal. Indian lenders will remain key to support the group until it regains broader access to the international capital markets.
“The amount falling due in March is not large and the group has strong cashflows that could comfortably address debt maturities for more than two years,” said the second loan banker in Singapore. “Even if things take a turn for the worse from where we are now, there is plenty of wiggle room Adani has to manage the situation. It can tap Indian lenders for support or slow down its capital expenditure.”
“Whether one likes it or not, Adani is too big and it won’t be allowed to fail in India,” said the first loan banker. “The underlying operations represent some of the best-performing assets in the country, which are core to the economy’s growth. This too shall pass.”
Refiled story: Clarifies issuers in 31st paragraph