Sustainalytics Downgrades Three Adani Companies' Governance Scores

Sustainalytics downgraded corporate governance-related scores for three of India's Adani Group companies on ethics concerns, the sustainability ratings company said on Wednesday, citing questions a short-seller raised last month.

The lowered scores, including for Adani Green Energy and Adani Transmission, come after a Jan. 24 report from short-seller Hindenburg Research alleged accounting fraud and stock manipulation at the sprawling Indian conglomerate, hammering the shares of its listed companies and the wealth of founder Gautam Adani.

Representatives for Sustainalytics, a unit of Morningstar Inc, said its clients received research this month elaborating on the downgrades.

The changes flow to the overall risk rating tied to environmental, social and governance (ESG) matters assigned by Sustainalytics to Adani companies, which can influence whether sustainability-minded fund managers buy or hold the securities.

The changes would not have a major impact on the overall risk scores, a Sustainalytics director said. She added the company will continue to monitor the situation amid further reviews of Adani by regulators and investors.

Adani denies the allegations.

Other ESG ratings firms and index providers have revisited Adani in recent weeks. S&P said last week it would remove Adani companies from its Dow Jones Sustainability Indexes.

A representative for Moody's, another ratings agency, said its controversy risk assessment team had "captured a controversy" relating to Hindenburg's report and said it was monitoring the situation.

Among its downgrades this month, Sustainalytics assigned Adani Green Energy a "moderate" business ethics controversy score, citing the accounting issues, where no score was placed previously. Adani Total Gas Ltd and Adani Transmission Ltd also were judged to have a "moderate" business ethics controversy score, worse than previous "low" scores.

In addition Sustainalytics said in a Feb. 7 report that while it was maintaining its "significant" business ethics controversy score on Adani Enterprises Ltd, the ratings outlook for that area was downgraded to 'negative' from 'neutral.'

"The increasing financial and reputational risks stemming from the report by Hindenburg Research, as well as previous investigations and inquiries into the company's activities, contribute to the negative outlook," Sustainalytics' report stated.

The firm added it would consider a ratings downgrade if regulatory probes confirm Hindenburg's allegations or locate new evidence.

"Moderate" scores for business ethics were left unchanged at Adani Ports & Special Economic Zone Ltd and at Adani Power Ltd, Sustainalytics said.

(Reporting by Ross Kerber in Boston and by Tommy Wilkes in London; Editing by Josie Kao)

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