Adani Rout Hits $71 Billion as Fight With Hindenburg Intensifies

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(Bloomberg) — Billionaire Gautam Adani’s 413-page attempt to restore confidence in his business empire is falling flat with investors, as stock-market losses deepen and key dollar bonds fall to fresh lows.

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Shares of most Adani Group firms slumped on Monday despite the Indian conglomerate’s lengthy weekend rebuttal to allegations of fraud by short seller Hindenburg Research. The three-day selloff has now erased about $71 billion market value amid a share sale by Adani’s flagship that was meant to underline the tycoon’s ascension on the global stage.

While the Adani Group has portrayed Hindenburg’s allegations as baseless and an attack against India itself, the saga is reviving longstanding investor concerns about the conglomerate’s corporate governance. It also threatens to weaken broader confidence in India, until recently a top investment destination for Wall Street, and accelerate a nascent shift toward a reopening China.

“The risk-reward for Indian markets has just taken a turn for the worse,” said Charu Chanana, a strategist at Saxo Capital Markets. “Foreign investor confidence has been dented and will take time to repair, so I would be rather cautious. India anyway started this year trading at a premium to other EMs, and the Adani saga has once again questioned whether that is justified.”

The selloff is also fast eroding the wealth of Adani, Asia’s richest man, after his stocks were some of the best performers last year not just in the local market, but also on the broader MSCI Asia Pacific Index.

Some Gains

While the broad selloff continued on Monday with Adani Total Gas Ltd. and Adani Transmission Ltd. down as much as 20% again, there were signs of a divide emerging among traders. Adani Enterprises Ltd., the flagship, as well as Ambuja Cements Ltd., rebounded following the ports-to-cement conglomerate’s rebuttal of Hindenburg’s fraud allegations.

Six of the 10 Adani group stocks traded lower as of 12:20 p.m. in Mumbai, with Adani Enterprises up 4% after an earlier jump of as much as 10%. Its shares remain below the floor price set for the follow-on equity sale. The company is seeking to raise 200 billion rupees ($2.5 billion).

“The market is likely to reward Adani group companies with relatively better visibility of earnings and solid fundamentals such as Adani Ports, Ambuja and ACC,” according to Nitin Chanduka, an analyst at Bloomberg Intelligence. “Post the sharp correction, valuations have cooled off and could offer attractive opportunities for long-term investors.”

Overall subscription for the share offer by Adani Enterprises, which closes on Tuesday, was at just 2% as of 12:06 p.m. in Mumbai on Monday. Retail investors had bid for 3% of the shares on offer for them, while the company’s employees bid for 8% of the shares for their category. The non-institutional part that includes wealthy individuals had been taken up 1%. Institutional investors bid for 4,576 shares, a fraction of the 12.8 million on offer.

While investors in Indian public offerings typically wait until the last day of the sale to place bids, concerns have risen that Hindenburg’s attack has soured sentiment.

There will be no change to the pricing of the additional share sale and it will proceed as per schedule, Adani Group CFO Jugeshinder Singh told news channel CNBC TV 18 in an interview.

Tit-for-Tat

A decline in the dollar bonds of the Adani Group companies quickened on Monday. Adani Ports & Special Economic Zone Ltd.’s 2027 note dropped 6.2 cents, Bloomberg-compiled data show.

At least four group notes including debt of Adani Electricity Mumbai Ltd. have fallen to distressed levels below 70 cents on the dollar that generally indicate mounting concern about creditworthiness.

In its rebuttal published Sunday, Adani said that some 65 of the 88 questions have been addressed in the conglomerate’s public disclosures, describing the short seller’s conduct as “nothing short of a calculated securities fraud under applicable law.” It reiterated it will “exercise our rights to pursue remedies to safeguard our stakeholders before all appropriate authorities.”

In the latest twist, Hindenburg then said Adani’s rebuttal ignored all its key allegations and was “obfuscated by nationalism.” The conglomerate’s statement failed to specifically answer 62 of Hindenburg’s 88 questions, the short seller said Monday, and conflated the company’s “meteoric rise” and the wealth of Asia’s richest man “with the success of India itself.”

“About 70% of rebuttals are from prospectus disclosures, so nothing new to learn from it,” said Deven Choksey, managing director at KRChoksey Holdings. Still, “Hindenburg must prove their allegations by testing them under Indian laws.”

–With assistance from Finbarr Flynn and Devidutta Tripathy.

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