Sources say that global banks are considering halting new credit to Adani in India after the U.S. charges.

Sources said that some global banks may temporarily stop new credit to India's Adani Group, but continue with their existing loans after U.S. prosecutors indicted its billionaire founder Gautam Adani on fraud charges.

Eight people, including Adani chairman Gautam Adani have been charged by U.S. prosecutors with paying $265 million to Indian officials in bribes for contracts and to develop India's biggest solar power project.

This is the second crisis to affect the conglomerate, founded by Adani 62, who is one of the richest men in the world. Adani Group said that the U.S. government's allegations were "baseless" and "denied".

Since the details of the indictment were released, senior executives from two of Adani’s global lenders have made multiple calls to their banks to discuss the exposure of the group to their bank and the impact the latest development will have on the financial status of the group.

We will need to pause new lending until we can figure out how this will work. "I think it will take a while for the bank to be able tap the credit markets," said a senior banker in the West.

The banker who declined to be identified as he wasn't authorised to talk to the media said that most of the firms in the group have stable cash flow and don't need to raise capital "desperately".

The banker stated that the indictment will cast a shadow over expansion plans in India and abroad as creditors will pay more attention to the outcome of the indictment, but also the "key person risk" the group faces.

One senior banker from another Western bank that is one of the largest lenders to this group said the bank will also temporarily freeze new lending, and they are keeping an eye on the Indian Government's response to the indictment.

The bankers who spoke with this article agreed to remain anonymous due to the sensitive nature of the subject and the confidential nature of their internal discussions.

Indian opposition parties who have complained for years that Prime Minister Narendra Modi and his government have treated Adani's conglomerate favorably have called for an investigation of allegations of wrongdoing.

Modi and Adani both hail from Gujarat in the west. They have denied any wrongdoing.

The future of our action will depend on the government's decision to either resolve the issue or to launch its own investigation, said a senior banker from a Western bank. He added that the infrastructure giant had now become too big to fail for India.

According to a Japanese bank that has credit exposure to Adani, in cases such as the one with the Indian conglomerate lenders tend to stop new lending because of reputational risks. According to the bank that declined to name itself, indicting an individual would not generally breach any of their loan covenants.

Adani has not responded to a request for comment immediately.

DEBT MATURITY

Adani stated in a statement released in April of last year that global banks such as Barclays Bank, Deutsche Bank and Mizuho, Mitsubishi UFJ Financial Group SMBC Group, Standard Chartered, and Mitsubishi UFJ Financial Group reaffirmed their confidence in the Adani Group after it had been hit by a "short-seller" attack.

Bank spokespersons declined to comment.

S&P Global Ratings stated in a Friday note that the indictment may affect investor confidence, which could potentially reduce their access to funding and increase their funding costs.

"We think domestic banks, as well some international bond market investors and bankers, will look at Adani as a whole and may set group exposure limits. It said that this could affect funding for rated entities.

Rating agencies have added, however, that rated entities do not have any "immediate and lumpy" debt maturity dates.

Another banker said that some global banks with Adani ties are examining bond and loan documents to determine if they could be exposed to default risk or a liability in the event investors decide to demand their money.

Lawyers familiar with corporate loan and bond agreements said that there wasn't much room in the documentation for investors or bankers to force a company to repay them, since the conviction had not yet been made.

Om Pandya is a Houston based partner in the capital markets group at Clifford Chance. He said that a borrower's continued payment of interest would undermine any argument made by creditors who are looking for clauses within loan or bond documents to trigger default.

John Joy, a managing attorney of FTI Law, an international law firm specializing in Foreign Corrupt Practices Act violations, explained that the most likely civil liability for the banks would be from investors who were introduced to Adani via the banks.

He said: "Civil litigation can be a long process. It is possible, during discovery, that investors may uncover involvement not disclosed by the SEC or DOJ."

Adani is not yet in custody, and U.S. prosecutors will need to request that the Indian government extradite Adani under the terms of their extradition treaty. Adani may fight extradition and it's unclear how long this process will take.

Ed Al-Hussainy is the head of emerging markets fixed income research for Columbia Threadneedle. He said: "There has been no conviction... but you might be getting nervous if you are a risk officer in a bank that has exposure to Adani." Reporting by Shankar Ramakrishnan in New York, Sumeet chatterjee and Davide Barbuscia from Hong Kong; Anton Bridge from Tokyo; Sinead cruise in London; editing by Sonali Paul

(source: Reuters)