Sandstone Insights: GQG share price drops amid Gautam Adani bribery charges

ASX code: GQG

Need to know

• GQG Partners's stock has dropped significantly following news that India's Gautam Adani has been charged in the United States (US) with bribery claims
• GQG's emerging markets and international strategies are major shareholders in several Adani Group companies
• This event could impact GQG's efforts in fundraising and client retention.

Investment implications: shareholdings

GQG invested in Adani companies in 2023 when their stocks were under pressure from negative media coverage. Since then, these investments have delivered strong returns. However, recent charges against eight Adani executives, including Gautam Adani and his son, have raised concerns.

As of the latest regulatory filings on 30 September, GQG holds significant stakes in several Adani companies:

• Adani Enterprises: 3.95% or $1.52 billion
• Adani Green Energy: 4.81% or $1.28 billion
• Adani Ports: 4.49% or $1.48 billion
• Adani Power: 5.94% or $1.42 billion
• Adani Energy: 4.56% or $566 million

Total investment and exposure

GQG has a total of $6.3 billion invested across five Adani companies, representing 4% of its total $160 billion funds under management (FUM). By strategy:

• Emerging markets: $2.5 billion exposure, 6% of its $43 billion FUM
• International: $3.5 billion exposure, 6% of its $62 billion FUM
• Global: $0.3 billion exposure, 1% of its $39 billion FUM

Current status and trading impacts

These shareholdings may have changed over the past seven weeks. Today, GQG stated that 'in excess of 90% of our clients' assets are invested in issuers unrelated to the Adani Group.'

Meanwhile, Adani stocks are trading at their limit down in India, meaning trading is suspended when stocks fall by 10%, 15%, or 20% in a single day.

If these stocks were to lose 50% of their value, the impact on GQG’s strategies would not be catastrophic, corresponding to a 2% decrease in group FUM.

Hypothetical scenario for stock value loss

For illustrative purposes, if these stocks were to lose 50% of their value, the impact would be:

• Emerging markets: down 3%
• International strategies: down 3%
• Global: down 0.5%
• Group FUM: down 2%

These figures are not catastrophic alone and do not justify the 25% drop in GQG's share price seen earlier today, which has since recovered to a 15% drop.

Long-term considerations and reputational risks

The long-term outcome of the charges and their impact on the Adani companies remain uncertain.

The immediate concern for GQG is likely reputational damage rather than a direct decline in FUM. A prolonged decline in performance relative to peers could hinder GQG’s ability to attract new investors and may result in losing some existing investors, impacting long-term growth prospects.

Thesis break on trading strategy

Given the current scenario, this situation constitutes a thesis break on our trading 'buy' call, as the ability to grow FUM was a key attraction.