Can GQG Rebuild Investor Trust in Adani Businesses

The Adani Group has faced intense scrutiny and challenges over the past two years. In January 2023, Hindenburg Research, a US-based firm, released a detailed report accusing the conglomerate of accounting fraud, stock price manipulation, and using tax havens. This triggered a massive collapse, wiping out over ₹12 lakh crores in the market value of Adani’s publicly listed companies.

Recently, the US Securities and Exchange Commission (SEC) and the Department of Justice accused Gautam Adani and seven others of allegedly bribing Indian officials with ₹2,000 crores to secure solar energy contracts for Adani Green, a subsidiary of the group. While these contracts were local, their financing involved US investors. Adani’s failure to disclose the alleged bribes violated the Foreign Corrupt Practices Act (FCPA), which prohibits bribery by entities linked to US financial systems. Consequently, American regulators initiated legal proceedings.

The fallout has been dramatic. Within three days of the news, Adani Group stocks lost nearly ₹2.45 lakh crores in market value. The group’s dollar-denominated bonds plummeted to their lowest levels in nearly a year. Credit rating agencies Moody’s and Fitch downgraded Adani’s credit ratings, and several banks have paused new lending to the conglomerate. Additionally, global partners like TotalEnergies have delayed further investments, and governments are reassessing Adani’s deals. Kenya canceled contracts worth over $2.5 billion, a US agency reconsidered its support for a Sri Lankan port project, and Bangladesh launched a review of Adani’s power agreements.

Institutional investors, critical to Adani’s operations across ports, airports, and renewable energy, are also reevaluating their positions. Trust, vital for such relationships, has eroded due to these controversies. However, one major investor, GQG Capital, remains resolute. The US-based investment firm has confidence in Adani’s core businesses and their role in India’s growth. GQG’s $8 billion investment accounts for 5% of its total assets, and the firm believes Adani can manage potential penalties without disrupting its operations.

Despite GQG’s support, its stance has raised concerns among clients, who question the firm’s heavy reliance on Adani. GQG’s shares, listed in Australia, dropped over 20% following the US indictment. Analysts warn that GQG’s deep involvement poses systemic risks. With GQG holding 12–20% of Adani’s free float, alongside LIC’s significant stake, any sale could trigger a market-wide selloff.

This situation mirrors a standoff. GQG’s unwavering commitment helped Adani recover from the Hindenburg-triggered crisis in 2023, when the firm invested $1.9 billion to stabilize the group. However, mounting client pressure now tests its resolve. Will GQG’s faith in Adani prevail, or will it bow to external pressures, risking market turbulence and a potential financial crisis?

The outcome of this confrontation will significantly shape the future of both the Adani Group and its institutional investors, highlighting the delicate balance of trust and risk in the world of finance and stock markets.