US charges against Gautam Adani put loyal Jefferies on the spot

US investment bank Jefferies was happy to help out Indian billionaire Gautam Adani’s business empire after it was hit with damaging fraud allegations last year, brokering a $1.9bn capital boost for the infrastructure group and cheering it on social media.

Since then it has been the only US bank that has helped the Indian group’s companies raise equity, according to public data.

It is a relationship that helped propel Jefferies’ rapid expansion in India — but one that now puts the New York-based bank in a potentially tricky position following Adani’s separate indictment by US authorities over an alleged $256mn bribery scheme.

People with knowledge of Jefferies and its workings said it was hard to imagine it continuing the relationship while Adani faces US charges. But distancing itself from one of India’s richest men, and the business that flows from his sprawling infrastructure group, could have consequences too.

In a sign of the international impact of the US charges against Adani, French oil major TotalEnergies on Monday announced it had suspended fresh investments in joint projects with Adani Group, saying the conglomerate had not informed it of the corruption probe. 

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

Executives at Jefferies internally debated whether it should keep Adani as a client in the wake of the Hindenburg report, according to people involved in the discussions. The bank was at the time acting as one of three lead managers on a planned $2.4bn Adani share offering, and made the controversial decision to press ahead with it even as international investors took stock of the group’s financial position.

Billionaire hedge fund manager Bill Ackman, a client of Jefferies, questioned how banks involved in the equity offering could allow it to close without proper due diligence on the allegations made by Hindenburg. “There is just too much liability exposure for the banks,” he wrote on X in late January last year.

Adani chose to pull the offering after international investors largely withdrew their interest, but Jefferies had one foreign buyer lined up. 

In March 2023, the bank brokered a deal in which Florida’s GQG Partners ploughed $1.9bn into four Adani Group companies. On professional networking platform LinkedIn, Jefferies said it was “pleased to have brokered a landmark transaction” that would be “a compelling long-term value investment” for GQG.

Jefferies’ relationship with Adani has helped the bank to expand quickly in India, a fast-growing market in which it has gone in a few years from being a small player to making more money in fees from advising on equity-raising than any other international bank.

The bank has leapt to second place in a fees league table, figures from Dealogic show, behind only India’s ICICI. Last year, it was in eighth place and in 2019 as low as 32nd.

Two deals that helped propel it to second place were a $500mn Adani Enterprises share sale in October, and a $1bn Adani Energy Solutions fundraise in August.

Last year Jefferies’ investment banking fee revenue in India jumped to $44.9mn, close to four times the sum it had made in any year since at least 2014, figures from the London Stock Exchange Group show. So far this year, it has already topped that, with $57mn in fees. It is 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 “deeply focused on” India, where it had undertaken 50 transactions in the past three years. “Six to seven” were for GQG, he said, including helping it buy stakes in Adani companies after the Hindenburg report.

“We believe in partnering with our clients, in good times helping them to raise money, in tough times consolidating, whatever it requires,” he said.

Jefferies is the only foreign bank to have advised Adani companies on equity issuance since the Hindenburg report, according to Dealogic figures, though the data provider cautioned that it did not have “full visibility” because of Adani Group’s complicated structure.

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

The US indictments allege that Adani Green under its executive director Sagar Adani, Gautam Adani’s nephew, engaged in a “lucrative” bribery scheme to win Indian solar power supply contracts. They say the scheme was concealed from US investors and banks from which Adani and associates raised billions of dollars.

Jefferies’ India business was listed as holding a 3 per cent stake in Adani Transmission as of June 2023, filings show, though it is not named in more recent filings. It is not clear whether the bank was holding the stake itself or on behalf of a client.

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

The bank predicted Adani Green shares could shoot up by 75 per cent in a best-case scenario. After a sharp fall following news of the US charges, the shares traded on Tuesday down more than 45 per cent from the July 1 level.

Jefferies declined to comment on its relationship with the conglomerate or on the US charges against Adani. Adani Group has said the charges are “baseless” and that “all possible legal recourse will be sought”.

As recently as last month, a senior Jefferies executive was privately touting its relationship with Adani as a success. But a person close to the bank said it would now consider future business with the group on a case-by-case basis, an indication of the difficult line it is now trying to tread.

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