Adani Group value halved in rout over Hindenburg report

Hindenburg Research questioned the Indian conglomerate's debt levels and use of tax havens

By Abhishek Vishnoi and Ashutosh Joshi

Pressure mounted for Indian billionaire Gautam Adani to quickly address concerns over his conglomerate’s financial health as a brutal stock rout wiped out more than half of the value of his companies.

About $125 billion (Rs 10.28 lakh crore) evaporated in the market capitalization of his group’s 10 stocks since the US-based Hindenburg Research last week claimed that offshore shell entities were used to inflate Adani Group’s revenues and manipulate stock prices. Flagship Adani Enterprises Ltd. sank a record 35 per cent intraday, taking its decline to 70 per cent in seven trading sessions.

The continued slump reflects worries about Adani’s access to funding after the tycoon scrapped a key stock offering this week, and as long-held concerns about the group’s debt load were propelled onto the global stage by Hindenburg. The embattled tycoon is in talks with creditors to prepay some loans backed by pledged shares, as some banks stopped accepting the securities of the group that spans from ports to energy as collateral in client trades.

Also Read | Adani in talks to prepay share pledges to boost confidence amid stock rout

“Investors are not just interested in clearing pledges, they want concrete plans and actions,” said Sameer Kalra, founder of Target Investing in Mumbai. “The use of every rupee on balance sheet is critical now. There are a lot of stakeholders.”

The crisis of confidence in Adani has become a national issue with opposition lawmakers disrupting Parliament on Thursday to demand answers from Prime Minister Narendra Modi’s government, given how closely his interests are intertwined with the nation’s growth plans. Government officials have sought to downplay the impact.

Hindenburg Research last week accused the Adani group of “brazen” market manipulation and accounting fraud, claiming that a web of Adani-family controlled offshore shell entities in tax havens were used to facilitate corruption, money laundering and taxpayer theft.

Also Read | Adani backers from New York to Tokyo dissect and limit exposure

The conglomerate has repeatedly denied the allegations, called the report “bogus,” and threatened legal action. Adani gave a video speech on Thursday stating that the group’s balance sheet is healthy.

In a reprieve for Adani, the group’s bonds rallied Friday after Goldman Sachs Group Inc and JPMorgan Chase & Co told some clients that the debt can offer value due to the strength of certain assets. All 15 dollar debt securities, some of which had fallen into distressed pricing, advanced, partly helped by news that Adani Ports & Special Economic Zone Ltd has made a coupon payment on schedule.

“There is distressed value on such investments but they are risky, they deserve such high yields,” said Rakhi Prasad, an investment manager with Alder Capital. “I won’t recommend either shares or bonds in a falling-knife market.”

Meanwhile, banks have been tightening scrutiny on Adani companies’ securities. Units of Credit Suisse Group AG and Citigroup Inc earlier this week stopped accepting some securities issued by Adani’s companies as collateral for margin loans to wealthy clients.

Also Read — Adani calls off FPO, to return money to investors

Separately, Lord Jo Johnson, the former Conservative minister and brother of former UK prime minister Boris Johnson, has resigned as a director of Elara Capital, a London-based firm embroiled in the controversy at the Adani empire, the Financial Times reported. The firm was one of the 10 bookrunners on the record share sale that Adani Enterprises abruptly abandoned earlier this week.

Adani’s proposed loan prepayment would see lenders release some of the stock in the group’s companies that was pledged as collateral, Bloomberg News reported, citing a person with knowledge of the matter. The Indian group hasn’t faced margin calls on these pledges and is seeking the prepayment proactively, the person added.

His backers include Citigroup Inc, Credit Suisse Group AG and Barclays Plc. They are among banks pursuing a range of options to curb the risk of losses.

“Contagion concerns are widening, but are still limited to the banking sector,” said Charu Chanana, a strategist at Saxo Capital Markets. “The focus remains on further risks of index exclusions, while a coherent response on the fraud allegations from the Adani Group is still awaited.”