Feb 5, 2023
Adani Stock Rout Enters Third Week as Flagship Shelves Bond Sale
(Bloomberg) -- The stock rout roiling Gautam Adani’s indebted conglomerate entered a third week, with the billionaire and his family prepaying $1.11 billion worth of borrowings backed by shares in a bid to restore investor confidence.
Six of the group’s 10 stocks ended lower in Mumbai on Monday, with Adani Transmission Ltd. and Adani Total Gas Ltd. leading the losses. The meltdown since US short-seller Hindenburg Research made fraud allegations against the ports-to-power group in a Jan. 24 report has wiped out $117 billion, or almost half of the market value of its companies. Adani has repeatedly denied the claims.
Worries about the conglomerate’s access to funding rose further after Bloomberg reported Saturday that Adani Enterprises Ltd., its flagship firm, has shelved a bond sale just days after it abandoned a record stock offering. S&P Global Ratings also has cut its outlook on a port operator and an electricity distributor in the group, just as some of the companies are due to release quarterly earnings this week, giving investors a chance to scrutinize the conglomerate’s financial health.
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The founders’ early payment of borrowings will help release 11.77 million shares in Adani Transmission Ltd. and as many as 168.27 million shares of Adani Ports & Special Economic Zone Ltd., the group said in a statement Monday. Adani Ports’ stock erased intraday declines to finish 9.3% higher, its biggest gain since April 2021. The flagship ended 0.9% lower and is now down 54% since the rout began.
The ramifications of the selloff are spreading far and wide as concerns grow about the exposure that financial institutions and investors have to Adani. The tumult has disrupted parliament and India’s main opposition party is ramping up pressure on Prime Minister Narendra Modi over his silence on the issue. It staged some protests on Monday to highlight the risk to small investors.
“This week turns the focus to Adani Group companies reporting earnings - and their comments on the debt sustainability,” said Charu Chanana, a strategist at Saxo Capital Markets. “It is still necessary for Adani Group to coherently respond to the fraud allegations, and emphasize its sound financial position to restore investor confidence.”
Hindenburg Research 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 called the report “bogus,” and threatened legal action. Adani gave a video speech last week stating that the group’s balance sheet is healthy.
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Indian authorities stepped in over the weekend to calm frayed nerves, saying regulators are competent enough to deal with the fallout and banks’ exposure to the group are within limits.
The stock rout has cost India its place among the world’s five biggest stock markets, while the rupee is the worst-performing emerging Asian currency this year. Foreigners have pulled out $3.8 billion from the nation’s equities in 2023, the most among emerging Asian markets, excluding China.
Indicating investors’ persistent concerns about Adani’s debt woes, eight of the conglomerate’s 15 dollar bonds fell as of 6:26 pm in Hong Kong on Monday, led by 2031 notes of Adani Ports, which fell 1.7 cents, Bloomberg-compiled prices show. US currency debt of Adani Green Energy Ltd due in 2024 rose 1.2 cents, gaining for a second day.
The group’s aggregate debt is “just about $30 billion,” Chief Financial Officer Jugeshinder Singh told news channel CNBC TV-18 in an interview aired Jan. 30, without elaborating.
Adani’s bondholders are holding initial conversations with financial advisers and lawyers to weigh their options, seeking guidance on how the group’s debt structure would be impacted under various scenarios, including the prospect for regulatory and legal redress.
“Adani did have a lot of debt, so in terms of the corporate governance, there are always question marks around them,” Catherine Yeung, an investment director at Fidelity International Ltd., told Bloomberg Television Monday. “This really reiterates how, especially in emerging markets, you really have to have an understanding of companies, really going to find detail about their balance sheet.”
--With assistance from Abhishek Vishnoi, Aya Wagatsuma, Bhuma Shrivastava and Harry Suhartono.
©2023 Bloomberg L.P.