Adani’s US woes put TotalEnergies on the spot
The author is a Reuters Breakingviews columnist. The opinions expressed are her own. Refiles to add hyperlink in paragraph one, adds stock symbol in paragraph two.
By Yawen Chen
LONDON, Nov 22 (Reuters Breakingviews) -Patrick Pouyanné is used to coping with tricky circumstances in emerging markets. The TotalEnergies TTEF.PA CEO was one of the few western bosses to attend Saudi Arabia’s Future Investment Initiative in 2018 in the immediate aftermath of Jamal Khashoggi’s murder by Saudi agents. And he took his time to pull out of Russia after its war with Ukraine. Even so his company’s close relations with Indian billionaire Gautam Adani, who is facing U.S. bribery charges, still constitute a challenge.
The French energy giant’s Adani connection goes back to 2018, when the two companies developed a liquefied natural gas (LNG) business together. Pouyanné now holds a 37% stake in Adani Total Gas ADAG.NS, plus a 20% in Adani Green Energy ADNA.NS, which at 11 gigawatts (GW) of solar and wind capacity is the biggest renewable player in the country. In September, Total doubled down with Adani Green via a separate solar joint venture.
Awkwardly, Adani Green is now at the centre of U.S. corruption charges. U.S. prosecutors allege that Gautam Adani and others agreed to pay $265 million in bribes to Indian government officials between 2020 and 2024, in order to secure solar-power contracts for Adani Green at above-market rates. Their interest is that Adani Green raised $175 million from U.S. investors via a 2021 bond offering. Adani denies the charges.
Total investors’ relatively sanguine share price reaction may reflect that they see this is as different from the company’s 2018 experiences in Iran. Back then, the threat of U.S. secondary sanctions obliged Total to back out of a key gas project in the Islamic Republic. Adani’s bribery charges seem a different sort of challenge, and Total itself hasn’t been accused of anything. Pouyanné will be keen to ride out the storm, as he did when Adani was the subject of a short-seller attack last year.
Still, the long arm of U.S. law represents a cloud that will hang over Total’s Indian plans. Bernstein analysts flag the risk that Total receives questions about its due diligence before becoming involved with Adani. They also point out that while Total’s Indian investments represent only 3% of its total capital employed, the country contributes 6 GW, or about 25% of Total's operational renewables portfolio. Adani Green’s 50 GW target for renewable power capacity by 2030 dovetails with Total’s own ambitious capacity goal of 100 GW by the same date.
After it unveiled new partnerships with Adani Green in 2023, Total flagged the risk of profitability losses, costs in relation to potential litigation and the risk of damage to its reputation "if the Company did not choose high-quality partners or failed to manage its partnerships in an optimum way". The risk is its relatively high 10% return on capital employed from its greener power projects receives a hit. Rather than a wholesale Iran-style rethink, that may be the main consequence of Pouyanne’s latest emerging market headache.
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CONTEXT NEWS
U.S. prosecutors on Nov. 20 charged Gautam Adani, chair of Indian conglomerate Adani Group, of committing securities and wire fraud between 2020 and 2024. They allege that Gautam Adani and seven other defendants, including his nephew Sagar Adani, agreed to pay $265 million in bribes to Indian government officials to win solar-power contracts that were expected to generate around $2 billion in profit over 20 years for one of the chair's companies, Adani Green Energy.
Gautam and Sagar Adani have also been charged in relation to the alleged scheme by the U.S. Securities and Exchange Commission. The regulator accuses them of engaging in the fraud while raising $175 million from U.S. investors as part of a $750 million bond offering by Adani Green Energy in September 2021.
"The Adani Green offering materials included statements about its anti-corruption and anti-bribery efforts that were materially false or misleading in light of Gautam and Sagar Adani's conduct," the SEC said.
The SEC's complaint against Gautam and Sagar Adani seeks permanent injunctions, civil penalties, and officer and director bars. The Adani Group said the allegations against directors of Adani Green Energy were baseless and denied them.
TotalEnergies and Adani Green Energy entered into an agreement in September to create a new equally owned joint venture, with a solar portfolio of over 1 gigawatt (GW) in Khavda in Gujarat. TotalEnergies said the JV will support the company in becoming a global renewable leader as it targets 50 GW of renewable power capacity by 2030.
TotalEnergies holds a 20% stake in Adani Green Energy, which already operates over 11 GW of solar and wind capacity in India.
TotalEnergies' installed renewable power gross capacity https://reut.rs/412LFJh
Editing by George Hay and Streisand Neto
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