Surprise! Surprise! TotalEnergies stock, ADR unhurt as Adani crisis boils

While the Indian market has pummelled Adani group stocks since the US indictment, it’s surprising that the shares of the $23-billion TotalEnergies have stayed unscathed in the aftermath.

While the Adani group stocks extended the two-day decline to 16.40%, wiping out a cumulative market cap of ₹2.34 Lakh crore across the group, TotalEnergies ADR, listed on the NYSE with a market cap of $140 billion, closed at $60.25 on November 21, less than 1% fall over the previous day, while its stock on the Paris exchange, where it enjoys a market cap of euro 137 billion, was unchanged at euro 56.83, down 0.61%.

As alleged in the indictment, between approximately 2020 and 2024, Adani Group is alleged to have paid more than $250 million, from the money raised from investors in the US, as bribes to Indian government officials to obtain lucrative solar energy supply contracts with the Indian government, which were projected to generate more than $2 billion in profits after tax over an approximately 20-year period (the Bribery Scheme).

While the Adani group has come out with a statement, TotalEnergies has maintained a radio silence over the entire episode.

That’s surprising considering that the US judiciary and the SEC actions are related to bribery allegations against Adani Group with which the integrated French oil company has strategic ties and its securities are listed on the US exchange.

Following its $444 million investment announcement made in September this year, the French energy major’s total investment exposure to Adani Green Energy (AGEL) stood at $3.2 billion. TotalEnergies owns 19.7% in Adani Green Energy Ltd (AGEL) and 50% stake in Adani Green Energy Twenty-Three Ltd (AGE23L), which houses 2.3 GW of operating solar projects, and 50% in Adani Renewable Energy Nine (ARE9L), which owns 1.05 GW portfolio. TotalEnergies has board representation in AGEL and with presence across the audit, nomination, remuneration and risk management committees of AGEL. In addition, the company also has 50:50 board representation in the JVs – AGE23L and ARE9L

Incidentally, after the Hindenburg controversy, TotalEnergies had come out with a statement mentioning that its investments in Adani’s entities were undertaken in full compliance with applicable – namely Indian – laws, and with TotalEnergies’ own internal governance processes. “The due diligence, which were carried out to TotalEnergies’ satisfaction, were consistent with best practices, and all relevant material in the public domain was reviewed, including the detailed disclosures to regulators required under applicable laws,” the statement read.

In its September press statement following the $444 million infusion, the company stated that “the electricity generated by these solar projects will be sold through Power Purchase Agreements with the federal government agency, Solar Energy Corporation of India, and through sales on the wholesale market.”

In February 2023, TotalEnergies had, however, put on hold its plan to acquire a 25% stake in the ports-to-energy conglomerate's $50 billion hydrogen project, Adani New Industries.

The market’s muted reaction is surprising considering that TotalEnergy's annual report states that failure to comply with legislation such as the U.S. Foreign Corrupt Practices Act (FCPA) and the French law on transparency, is likely to expose the company to a high criminal, financial and reputation risk, as well as the enforcement of measures such as the review and reinforcement of the compliance program under the supervision of an independent third party.

While French law is quite strict, in November 2016, a new criminal settlement procedure was introduced in Article 41-1-2 of the French Criminal Procedure Code. This procedure is similar to the FCPA-type deferred prosecution agreements that allow companies, suspected notably of corruption or certain related offences, to avoid prosecution by entering into an out-of-court settlement agreement upon the proposal of the public prosecutor and validated by a French court. The agreement will require either both or any of the following:

(i) Payment of a fine (limited to 30% of the company’s three-year trailing average annual revenue and determined based on the proceeds of the offence), increased by damages to the victim and certain expenses incurred by the new French Anti-Corruption Agency within its mission (see section 6)

(ii) Implementation of an internal compliance program to be overseen by the French Anti-Corruption Agency for three years

Any such fine and/or compliance program must be approved by a judge in a public hearing and in exchange, charges would be dropped without the company having to make any admission of liability. Such deferred prosecution agreement is reserved for corporate entities, while individual offenders will remain subject to criminal sanctions even if the company enters into a deferred prosecution agreement.

It's not clear at this point if investors both in the US and France will be taking cognisance of the US indictment. While the Hindenburg report did not impact the stock prices of TotalEnergies, the action from the US judiciary and markets regulator are far more serious.

Interestingly, a report in Le Monde, one of the prominent French dailies, in an investigative report, in its June 4, edition had stated thus: “The highest levels of France's government and one of the country's biggest companies have long maintained a close relationship.”

The report went on to add, “TotalEnergies is a unique company: Present in over 120 countries, it deploys an influence network that is, at times, equivalent to that of the French foreign ministry. It also knows how to recruit the top experts for this task. A large part of Total's international affairs department is run by diplomats or former diplomats. The company itself has estimated that around 30 of the group's 300 managers are former senior civil servants who have held top-level positions. Over the last 10 years, more than 50 former state officials have held executive positions at TotalEnergies, according to Aria, an NGO specialising in investigations on energy and environmental matters.”

Incidentally, TotalEnergies CEO Patrick Pouyanne had told shareholders at the company's annual shareholder meeting in April this year that the company was "seriously" looking at a possible primary listing in New York to ensure easier access for US investors, adding he would report back to the board by September. He has also pledged that the company would continue to be listed on the Paris exchange.