Gautam Adani: Asia’s richest man in eye of a storm
Adani firms lose $65bn in value as battle with US short-seller Hindenburg Research escalates...
MOST Adani Group shares fell sharply on Monday (30) as the Indian conglomerate’s rebuttal of a US short-seller’s criticism failed to pacify investors, deepening a market rout that has now led to losses of $65 billion in the group’s stock values.
Led by Asia’s richest man Gautam Adani, the Indian group has locked horns with Hindenburg Research and on Sunday hit back at the short-seller’s report of last week that flagged concerns about its debt levels and the use of tax havens.
Adani said it complied with all local laws and had made the necessary regulatory disclosures.
Adani Transmission, Adani Total Gas, Adani Green Energy, Adani Power and Adani Wilmar fell between 5 percent and 20 percent on Monday.
Flagship Adani Enterprises, which is facing a crucial test this week with a follow-on share offering, swung between gains and losses before settling 4.8 percent higher. It stayed well below the offer price of the issue, which if successful will be largest such share offering ever in India.
Adani Enterprises’ $2.5bn secondary share sale closed its second day amid weak investor sentiment.
Foreign and domestic institutional investors, as well as mutual funds, have made no bids so far, according to the data.
‘Retail participation is likely to have a shortfall with current market prices still trailing the offer price and sentiment taking a hit due to the Hindenburg controversy,’ said Hemang Jani, equity strategist at Motilal Oswal Financial Services.
‘While there is a risk that the share sale does not go through, it will be crucial today to wait and see how institutional investors participate.’
Abu Dhabi conglomerate International Holding Company said on Monday it would invest $381.17m in the offering.
Indian regulations say the share offering must receive minimum subscription of 90 percent, and if it does not the issuer must refund the entire amount. Maybank Securities and Abu Dhabi Investment Authority are among investors who bid for the anchor portion of the issue.
Maybank said in a statement ‘there is no financial impact’ on it as the subscription to Adani’s offer was fully funded by client funds.
US dollar-denominated bonds issued by Adani Ports and Special Economic Zone continued their fall into a second week with the bond maturing in August 2027 USY00130VS35=TE down 5 cents to 73.03 cents, the lowest since June 2020. Other dollar denominated bonds of the group were also trading lower.
Index provider MSCI has said it was seeking feedback from market participants on Adani and was monitoring the factors that ‘may impact the eligibility of those relevant securities’ in MSCI indexes.
In its response on Sunday (29), Adani highlighted its relationships with local and international banks and its access to diverse funding sources and structures, listing US banks Citigroup and JPMorgan Chase & Co , as well as other lenders including BNP Paribas, Credit Suisse, Deutsche Bank, Barclays and Standard Chartered.
The stock market meltdown is a dramatic setback for 60-year-old Adani. The school-dropout’s stunning rise came with over 1,500 percent gains in some of his group stocks over three years, making him the world’s third richest man before he slipped to rank eighth on the Forbes list on Monday.
Responding to Adani’s rebuttal, Hindenburg said the company’s ‘response largely confirmed our findings and ignored our key questions’.
Hindenburg in its report said Adani companies had ‘substantial debt’ and that shares in seven Adani listed companies have an 85 percent downside due to what it called ‘skyhigh valuations’.
Adani’s response stated that over the past decade, its group companies have ‘consistently de-levered’.
LIC to ‘engage’ with Adani after allegations
Meanwhile, state-run Life Insurance Corporation
(LIC), India’s largest insurer, is reviewing Adani Group’s response to scathing criticism by Hindenburg and will hold talks with the group’s management within days to seek clarifications.
LIC has invested more than $4bn in the group, which has lost about $66bn since Hindenburg Research flagged concerns early last week about the business house’s debt levels and the use of tax havens.
‘Presently there is a situation that’s emerging and we are not sure what is the factual position ... Since we are a large investor, we have the right to ask relevant questions and we will definitely engage with them,’ said LIC Managing Director Raj Kumar.
LIC said in a statement it had invested $4.47bn in Adani companies, about 1 percent of its assets under management. It added that Adani debt securities held by LIC were rated AA and above, which was in compliance with India’s investment regulations for life insurance companies.
‘Of course, we are studying the 413-page reply given by Adani Group,’ Kumar said on Monday about the group’s response to concerns raised by Hindenburg.
‘We will also see if the concerns are addressed. If we believe the concerns are not addressed, we will seek further clarification from them. We will engage with them in a day or two and seek their views and clarification.’
LIC owned a 4.23 percent stake in the flagship Adani Enterprises as of end-December, more than 9 percent in Adani Ports and Special Economic Zone, nearly 6 percent in Adani Total Gas and 3.65 percent in Adani Transmission, data from the Bombay Stock Exchange shows.
Kumar’s comments came after Adani said in a statement late on Sunday that its ‘strategic and long-term investors have reposed complete faith and confidence in the group’.
Kumar said that LIC looks at ‘the long-term view unless there is something going very bad’.
‘Presently, we don’t see any kind of this thing,’ he said of Adani.
‘We have to gather all the information, clarifications; and a further call will be taken after that. The decision will also be based on an independent risk-assessment, internal risk-assessment, business profile and growth trajectory’.