US allegations against Gautam Adani embarrass loyal Jefferies

US investment bank Jefferies was happy to help Indian billionaire Gautam Adani’s business empire after it was hit by damaging fraud allegations last year. She brokered a capital increase of $1.9 billion for the infrastructure group and cheered it on social media.

Since then, it has been the only U.S. bank to help the Indian group’s companies raise capital, according to public data.

It’s a relationship that helped fuel Jefferies’ rapid expansion in India – but which now puts the New York-based bank in a potentially difficult position after Adani was separately prosecuted by US authorities over an alleged bribery scheme of $256 million.

People with knowledge of Jefferies and its operations said it was hard to imagine the relationship continuing while Adani faces charges in the United States. But distancing himself from one of India’s richest men and the deals that flow from his sprawling infrastructure concern could also have consequences.

In a sign of the international impact of US allegations against Adani, French oil giant TotalEnergies said on Monday that it had suspended new investments in joint projects with the Adani Group, saying the group had not informed it of the corruption probe.

Like Total, Jefferies continued to work with Adani after U.S. short seller Hindenburg Research accused the group of stock manipulation and accounting fraud in January 2023, allegations the company strenuously denied.

Jefferies executives debated internally whether to keep Adani as a client after the Hindenburg report, according to people involved in the discussions. The bank was then one of three lead managers in a planned $2.4 billion Adani share offering and made the controversial decision to move forward with the offer even as international investors took stock of the group’s financial position.

Billionaire hedge fund manager Bill Ackman, a Jefferies client, questioned how the banks involved in the stock offering allowed it to be completed without proper review of the allegations raised by Hindenburg. “The liability risk for the banks is simply too great,” he wrote on X at the end of January last year.

Adani decided to withdraw the offer after international investors largely withdrew their interest, but Jefferies had a foreign buyer lined up.

In March 2023, the bank brokered a deal in which Florida-based GQG Partners invested $1.9 billion in four Adani Group companies. On professional networking platform LinkedIn, Jefferies said it was “delighted to have brokered a groundbreaking transaction” that represents “a compelling long-term value investment” for GQG.

Jefferies’ relationship with Adani has helped the bank expand quickly in India, a fast-growing market where it has gone from a small player in just a few years to earning more fees from capital-raising advice than any other international market Bank.

Figures from Dealogic show the bank has moved up to second place in the fee table, behind only India’s ICICI. Last year it was in eighth place and in 2019 it was only 32nd.

Two deals that helped push the company into second place were a $500 million Adani Enterprises stock sale in October and a $1 billion Adani Energy Solutions fundraising in August .

Last year, Jefferies’ fee income from investment banking in India rose to $44.9 million, nearly four times the amount the company had earned in any other year since at least 2014, figures from the London Stock Exchange Group show. The company has already reached higher value this year, with fees of $57 million. It’s not clear how much of that revenue comes from Adani companies.

Aashish Agarwal, Jefferies’ India country head, told the FT last year the bank was “heavily focused” on India, where it had completed 50 transactions in the last three years. “Six to seven” were for GQG, he said, including helping to buy stakes in Adani companies after the Hindenburg report.

“We believe in working with our clients, helping them raise money in good times and consolidating whatever it takes in tough times,” he said.

According to Dealogic’s figures, Jefferies is the only foreign bank to have advised Adani companies on share issuances since the Hindenburg report, although the data provider noted that it does not have “full support” due to the Adani Group’s complicated structure “Transparency”.

Some European banks have worked for Adani on debt issuances since the Hindenburg report, but U.S.-based groups have not. Barclays, Deutsche Bank and Standard Chartered were among the underwriters when Adani Green Energy issued bonds in March. All three banks declined to comment.

The US indictments accuse Adani Green, under its chief executive Sagar Adani, Gautam Adani’s nephew, of engaging in a “lucrative” bribery scheme to win Indian solar power supply contracts. They say the plan was hidden from U.S. investors and banks from which Adani and his associates raised billions of dollars.

The filings show that Jefferies’ India business held a 3 percent stake in Adani Transmission as of June 2023, although it is not named in more recent filings. It is unclear whether the bank held the stake itself or on behalf of a customer.

Jefferies initiated coverage of Adani Green in July with a “buy” rating based largely on the company’s “prudent capital management” and its “game-changing” project to build the world’s largest solar facilities in Khavda, in the Indian state of Gujarat.

The bank predicted that Adani Green shares could rise 75 percent in a best-case scenario. After a sharp decline following news of the U.S. indictments, shares traded more than 45 percent below July 1 levels on Tuesday.

Jefferies declined to comment on its relationship with the company or on the US allegations against Adani. The Adani Group said the allegations were “baseless” and that “every possible legal recourse would be sought.”

Just last month, a senior Jefferies executive privately touted the relationship with Adani as a success. However, a person close to Jefferies said it is not currently doing any work for Adani and any future deal will be considered as it comes together, an indication of the difficult line the bank is now trying to tread.

The bank has offered public solidarity to Adani in the past. “A year ago we started a business relationship with @gautam_adani. “Today we are proud to be true partners,” Jefferies CEO Rich Handler wrote on social media platform X earlier this year. The post has since been deleted.