Shares in GQG Partners (ASX:GQG) tumbled today after UBS downgraded the company from a buy to a neutral and reduced the stock's price target from $3.30 to $2.30.
GQG is a US-based global investment management firm that specialises in equities, managing funds for institutional and retail investors worldwide. GQG holds significant stakes in emerging market companies.
The downgrade comes as GQG faces scrutiny over its exposure to the Adani Group. GQG has made billions from investing in Adani stocks following a short-seller report in early 2023. As of 19 November, GQG's stake in Adani Group companies was USD$9.7bn, representing approximately 6.1% of total assets under management.
However, the following day, US bribery charges were brought against Adani founder Gautam Adani and senior executives. UBS estimated GQG may have seen outflows of $600m in funds under management in the two days after the indictment, based on a memo sent from GQG to investors.
The Adani allegations
Adani Group, one of India’s largest conglomerates, operates across sectors including energy, ports, airports and logistics. Its subsidiaries include Adani Green Energy, a renewable energy company.
On 20 November, Indian billionaire Gautam Adani, along with seven other senior executives, was indicted in a federal court in Brooklyn in relation to an alleged US$250m bribery scheme to secure lucrative solar energy contracts in India.
The defendants were said to have paid bribes to Indian government officials to secure contracts projected to generate over US$2bn in profits. Prosecutors claim Adani and his associates misled US investors and financial institutions by concealing these practices while raising billions through loans and bond offerings. Detailed evidence, including electronic communications and financial analyses, was presented.
Charges include conspiracy to violate the Foreign Corrupt Practices Act, securities fraud, wire fraud, and conspiracy to obstruct justice.
The Adani Group has denied the allegations, describing them as "baseless".
Gautam Adani commented: "In today's world, negativity spreads faster than facts, and as we work through the legal process, I want to re-confirm our absolute commitment to world class regulatory compliance."
Market reaction
GQG shares closed closed 14.04% lower today at $2.02, despite UBS analysts stating they were “largely comfortable” with the firm’s Adani-related investment performance.
Meanwhile, Adani Green Energy, at the centre of the allegations, after hitting a yearly low of 898.55 Indian rupees on 26 November, has since recovered to 1,326.70 rupees, a 38.93% rise over the past five days.
