Adani Group rout erases a third of value
The crisis of confidence plaguing Gautam Adani is deepening, with a stock rout erasing one third of the market value in the group’s companies, as completion of a key share sale failed to lessen concerns about Hindenburg Research’s fraud allegations.
All of the 10 stocks tied to the billionaire’s Adani Group dropped in Mumbai trading, with Adani Total Gas Ltd leading the declines with a 10% plunge, a daily limit. Adani Enterprises Ltd, the conglomerate’s flagship firm that completed a $2.5 billion follow-on stock sale Tuesday, lost as much as 5.9%.
The declines show that Adani Enterprises’ latest fundraising isn’t enough to restore investor confidence, with US-based Hindenburg’s scathing report slashing $79 billion, or one third of the market value from the group’s stocks. Prolonged weakness in the shares may also undermine broader sentiment towards India, until recently a top investment destination for Wall Street.
“It is a wait-andwatch situation. They have obviously found the investors but concerns of Hindenburg Research have not been addressed,” said Brian Freitas, an analyst at Smartkarma.
The offering by Adani Enterprises was India’s largest followon share sale, and was fully subscribed on the final day, aided by a last-minute surge in demand from institutional investors. Interest from retail investors was notably weak. The firm was expected to announce the final price for its offering later yesterday.
The selloff in Adani shares yesterday stands in stark contrast to India’s equity benchmarks, which rose nearly 1%.
The credit market appears to have welcomed the fundraising success, with nearly all the dollar bonds issued by the Adani group of companies extending gains into a second day. The flagship firm’s latest stock offering is partly intended to help repay debt.
That said, if Adani’s stock prices decline further, the pressure will grow on the conglomerate’s debt using shares as collateral: the group already has put up millions of dollars worth of shares to maintain its collateral cover on a $1 billion loan after the recent stock meltdown, according to people familiar with the matter.
“The important thing to watch now post allotment is what level of holding period the investors are willing to have on these shares,” said Sameer Kalra, founder of Target Investing in Mumbai. “Having a few investors getting most of the allotment, there is a risk of some portion being sold immediately.”