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TotalEnergies Exposed To Alleged Adani Fraud Via Joint Ventures Worth Billions

In recent weeks Gautam Adani was near the top of the global rich list, with a fortune estimated in excess of $130 billion. Then this week came a raft of allegations against Adani, brought by short sellers Hindenburg Research. Their 100-page report tells a detailed story, drawn largely from public documents, of how the lofty stock market valuations of Adani’s empire of coal imports, power plants, gas and solar projects may be built on securities fraud. They allege that Adani, 60, and his close associates have used a network of offshore accounts to anonymously buy up and manipulate the thin, illiquid float of his public companies — then sold overpriced shares to unsuspecting retail investors.

Though he has not offered any point-by-point refutation of the allegations, Adani is threatening legal action against Hindenburg and its founder Nathan Anderson, who is short Adani shares and bonds.

Already the Adani bubble appears to have popped. In just two days shares in his companies are down 20%, shaving off some $50 billion in market value, and knocking Adani’s fortune below $100 billion. This bodes poorly for the attempts by flagship Adani Enterprises to sell $2.5 billion worth of new stock — at prices significantly higher than now.

There’s not a lot of investor exposure to Adani’s empire because insiders control so much of the float. But one international energy giant may suffer collateral damage: TotalEnergies. The French oil giant has invested more than $3 billion into Adani’s companies in recent years.

Last September, Total CEO Patrick Pouyanne said that they would likely trim their 20% stake in Adani Green, which had bloomed to $10 billion in value. No discouraging words from Pouyanne, who reportedly said, “We are committed to Adani Green,” and that the company’s balance sheet was “safe.”

Does he still feel that way? A Total spokesperson replied today via email that they won’t comment on Hindenburg’s allegations:

Our due diligence exercise, which was carried out to TotalEnergies’ satisfaction, was consistent with best practices, and all relevant material in the public domain was reviewed, including the detailed disclosures to regulators required under applicable laws.

Total’s partnership with Adani goes back at least as far as 2018, when Total made an initial investment in what’s now called Adani Total Gas, a gas distributor to homes and businesses. They worked on plans to develop liquefied natural gas import facilities, and in October 2019 Total agreed to pay $600 million for a 50% stake in Adani Gas. At the time, shares in Adani Gas cost 150 rupees. Shares topped out in early January at 3,900 rupees, but have since slipped 25%.

In 2020 Total bought a 20% stake in Adani Green Energy for $2 billion and paid another $510 million for 50% of its 2.35 gigawatt portfolio of operating solar assets. At the time Total bought in, shares in Adani Green Energy were around 200 rupees. At the start of last week they were at 1,900 rupees, but have since fallen 20%.

In June 2022 bought 25% of Adani New Industries, a division of Adani Enterprises. The price was undisclosed, but the partners say they intend to build the world’s biggest “green” hydrogen business, featuring a $5 billion electrolyzer. After Total’s buy-in, shares in Adani Enterprises nearly doubled in price by the end of 2022, to 4,100 rupees. They’re since off 32%.

It’s unclear how much of its Adani Green Energy stake Total sold last fall. Likely more than enough to pay for another green energy project; last October in Brazil, Total formed a $500 million joint venture (34% Total) with wind power developer Casa dos Ventos and its founder Mario Araripe. In May 2022 Total agreed to buy U.S. renewables developer Clearway Energy for $2.3 billion.

Total clearly hopes Adani can continue to help it grow in India. But it’s exposure to an Adani scandal looks pretty immaterial to the $150 billion Total, for now. Analyst Oswald Clint at Bernstein Research says that despite billions invested, the Adani businesses’ annual cashflow contribution of about $30 million to Total is “really insignificant.” He’s comfortable that these are real businesses. “I’m sure Total’s due diligence is rock solid, hence it’s impossible to speculate on these allegations.”

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