Adani Rout Erases Half of Group Value Since Hindenburg Report

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(Bloomberg) — The pressure on Gautam Adani to swiftly address concerns over his conglomerate’s financial health intensified as a brutal rout wiped out more than half the value of his companies following a report by short-seller Hindenburg Research.

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More than $118 billion was erased from the market capitalization of his 10 stocks since US-based Hindenburg claimed last week that offshore shell entities were used to inflate revenues and manipulate stock prices. Flagship Adani Enterprises Ltd. sank a record 35% intraday, before losses narrowed amid a series of big trades.

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 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.

“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 lawmakers disrupting parliament for two days 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, even as the opposition Congress Party plans nationwide protests to highlight the risks to small investors.

Hindenburg Research last week accused the 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. Adani gave a video speech on Thursday stating that the group’s balance sheet is healthy.

Fitch Ratings said Friday that there’s no immediate impact on the credit profile of the Adani companies it rates following the Hindenburg report. It also doesn’t expect material changes to the forecast cash flow.

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.

At least 200 financial institutions have had exposure to Adani Group’s $8 billion in dollar bonds, according to data compiled by Bloomberg based on the company’s most recent filings. BlackRock Inc, New Jersey-based Lord Abbett & Co. and New York-based Teachers Insurance & Annuity Association of America were among the big holders.

“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.”

Losses in Adani Enterprises narrowed to 14% as of 12:41 pm in Mumbai as at least 11 trades of more than 100,000 shares each changed hands. Such volatility is set to persist, with traders jumping to bet on potential outcomes.

The aggregate options volume has surged, with record highs seen in the open interest of both puts and calls.

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.

The fallout has already led to the removal of Adani Enterprises from the Dow Jones Sustainability Indices. Lord Jo Johnson, a former Conservative minister and brother of former UK prime minister Boris Johnson, has resigned as a director of Elara Capital, which was one of the bookrunners for the canceled Adani stock share, the Financial Times reported.

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.

The billionarie’s 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.”

–With assistance from Harry Suhartono.

(Updates with Fitch report in eighth paragraph, and value of dollar bonds in ninth paragraph)

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