India: Adani Group shares tank, rout touches $45 billion, clouding record share sale

Shares of Indian firm s Adani Enterprises sank nearly 20% on Friday after a scathing report by a U.S. short-seller triggered a rout in the conglomerate’s listed firms, casting doubts on how investors will respond to the company’s record $2.45 billion secondary sale. Seven listed companies of the Adani conglomerate — controlled by one of the world’s richest men Gautam Adani — have lost a combined $45 billion in market capitalisation since Wednesday, with the U.S. bonds of Adani firms also falling after Hindenburg Research flagged concerns in a Jan. 24 report about debt levels and the use of tax havens.

The rout took shares of Adani Enterprises, the group’s flagship company, well below the offer price of its secondary sale which kicked off on Friday.

The Securities and Exchange Board of India (SEBI), the country’s capital markets regulator, is studying the Hindenburg report and may use it to aid its own ongoing probe into offshore fund holdings of Adani Group, two sources told Reuters. Spokespersons for the regulator had no immediate comment.

Adani Group has dismissed the Hindenburg report as baseless and said it is considering whether to take legal action against the New York-based firm. It did not immediately respond to a request for comment on the SEBI’s investigations.

With a net worth of $97.6 billion, billionaire Gautam Adani is now the world’s seventh richest man, according to Forbes, slipping from the third position he held before the Hindenburg report.

Adani met the county’s power minister R.K. Singh on Friday in New Delhi, according to a source familiar with the matter. The agenda of the meeting was not immediately known.

The billionaire hails from the western state of Gujarat, the home state of Prime Minister Narendra Modi. The stunning market selloff has cast a shadow over Adani Enterprises’ secondary share sale. The anchor portion of the sale saw participation from investors, including the Abu Dhabi Investment Authority, on Wednesday.

“There were heavy positions in Adani group (shares), the way they have risen in the last couple of years,” said Neeraj Dewan, director at Quantum Securities in New Delhi.

“This is a classic case of panic selling,” he said, noting the concerns were also spreading to Indian banks with exposure to Adani Group’s debt.

The index tracking state-run banks slid 6.6%, while the main Nifty Bank index fell 3.5%.

CLSA estimates that Indian banks were exposed to about 40% of the Rs 2 trillion ($24.53 billion) of Adani Group debt in the fiscal year to March 2022. 

As of 0818 GMT, investors, mostly retail, had bid for around 266,000 shares of Adani Enterprises, compared with the 45.5 million on offer, according to BSE exchange data. Bidding for retail investors will close on Jan. 31.

The share sale is being managed by Jefferies, India’s SBI Capital Markets, Axis Capital, and ICICI Securities among others.

The firm has set a floor price of Rs 3,112 ($38.22) a share and a cap of Rs 3,276. But on Friday, the stock had slumped to as low as Rs 2,721.65 — well below the lower end of the price offering.

Shares of other listed Adani firms also plummeted, with Adani Transmission Ltd, Adani Total Gas, Adani Green Energy and Adani Ports sinking 20% each.

“The sell-off is seriously extreme … it has clearly dented the overall investor sentiment in the market,” said Saurabh Jain, Assistant Vice-President, Research, at SMC Global Securities.

In its report, Hindenburg said key listed Adani Group companies had “substantial debt”, putting the conglomerate on a “precarious financial footing”, and that “sky-high valuations” had pushed the share prices of seven listed Adani companies as much as 85% beyond actual value.

Billionaire U.S. investor Bill Ackman said on Thursday that he found the Hindenburg report “highly credible and extremely well researched.”

Hindenburg said it held short positions in Adani through its U.S.-traded bonds and non-Indian-traded derivative instruments, meaning it is betting that their price would fall.

Dollar bonds issued by entities of India’s Adani Group tumbled on Friday.

Adani Group has repeatedly faced and dismissed concern about debt levels. It defended itself in a presentation titled “Myths of Short Seller” on Thursday, saying deleveraging by promoters — or key shareholders — was “in a high growth phase”.

Jefferies in a client note said Adani Group had shared details of debt and leverage levels, and that it does not “see material risk arising to the Indian banking sector”.

Adani Group’s consolidated gross debt stood at Rs 1.9 trillion ($23.34 billion), Jefferies said.

Adani has said its debt is at a manageable level and that no investor has raised any concern.

The Adani conglomerate has been diversifying its business interests and last year it bought cement firms ACC and Ambuja Cements from Switzerland’s Holcim for $10.5 billion. ACC stock was down 15% on Friday, while Ambuja plunged up to 25%.

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