Adani Crisis Deepens as Stock Rout Hits $107 Billion, Bonds Sink

  • In Business
  • 2023-02-02 09:03:16Z
  • By Bloomberg

(Bloomberg) -- Gautam Adani's businesses have lost $107 billion in a week, one of the biggest wipeouts in history, after an explosive report by short-seller Hindenburg Research shook his empire, forced him to pull a stock sale at the 11th hour and had some lenders reject his securities as collateral.

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Adani, who last year became the world's second-richest man with a $147 billion fortune, has seen his own personal wealth plummet by around $57 billion since Hindenburg accused his companies of fraud to inflate revenue and stock prices. After drawing money from the Middle East and other Indian billionaires to shore up a $2.4 billion share sale, he then abruptly pulled it late Wednesday to protect investors.

The tumult has become a national issue with lawmakers disrupting parliament to demand answers from Prime Minister Narendra Modi's government, given how closely Adani's interests from ports to energy are intertwined with the nation's growth plans. The big worry looming over the conglomerate is that lenders and other counterparties start to pare their exposure, while contagion fears spread to other parts of the markets.

While Adani's company has rebutted the claims and the billionaire himself said in a video speech on Thursday that the scrapped equity offering will have no impact on operations, the selloff shows no signs of abating. The flagship Adani Enterprises Ltd. sank as much as 30% on Thursday, adding to a 28% tumble in the previous session.

In one sign of how risk perceptions are rapidly changing, units of Credit Suisse Group AG and Citigroup Inc. have stopped accepting some securities issued by Adani's companies as collateral for margin loans. India's central bank has asked lenders for details of their exposure to the indebted conglomerate, according to people familiar with the matter.

"The biggest risk is if Adani Group faces a severe deterioration in access to financing, particularly at its highly leveraged entities," Leonard Law, a senior credit analyst at Lucror Analytics, wrote in a note. "That said, the group can likely continue to raise funds from onshore banks and bonds for now."

The extent of the damage to Adani's empire may well depend on how Modi's government responds. The prime minister has so far stayed mum on Hindenburg's allegations, while the minister for tech and railways told Bloomberg TV that the economy can withstand the rout in Adani shares. Modi and Adani are widely thought to be close, though the tycoon has in the past said he hasn't sought any political favors.

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.

The conglomerate has repeatedly denied the allegations, called the report "bogus," and threatened legal action.

"The fundamentals of our company are strong. Our balance sheet is healthy and assets, robust. Once the market stabilizes, we will review our capital market strategy," Adani said in his video speech Thursday.

The rout has dragged down the broader Indian market. The MSCI India Index, which includes eight of the group's stocks, has dropped about 9% from a December peak, inching closer to a technical correction. Eight of the 10 worst-performing stocks in the MSCI Asia Pacific Index this year are Adani-linked companies.

"One has to be very watchful and investors would be well advised not to tinker with Adani stocks till there is clarity on the way forward," said Alok Churiwala, managing director of Churiwala Securities Pvt. "The stocks may recoup some of the losses but to come back to past levels, it's going to be tough because they are going to be scrutinized even more."

Hindenburg has said it has short positions in Adani's US-traded bonds, some of which saw the biggest decline in global secondary trading on Wednesday.

Two of the dollar bonds issued by Adani Ports and Special Economic Zone Ltd., maturing in 2027 and 2029, have both lost nearly 20% since the US short seller released its report, according to Bloomberg-compiled data. Adani Green Energy Ltd.'s Sept. 2024 note has plummeted nearly 30%.

Adani Group has $34.7 million of coupon payments due this week on its dollar bonds.

Hindenburg says key Adani companies are highly leveraged relative to the industry average, and that four of them have negative free cash flow, including the flagship. In Adani's rebuttal, it said the group's net debt to EBITDA ratio dropped to 3.2 times as of March 2022, from 7.6 times in 2013. It also stated that the leverage ratio is in line with industry benchmarks.

Looking at valuations, "there could be more downside to the Adani group shares," said Nitin Chanduka, an analyst at Bloomberg Intelligence. "Banks could take a knock in case foreign outflows intensify and there is a default on bonds but so far they haven't missed interest payments."

--With assistance from Abhishek Vishnoi, Matt Turner, Josyana Joshua, Filipe Pacheco, P R Sanjai and Cecile Vannucci.

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