Adani backers from New York to Tokyo dissect and limit exposure

Singapore - Financial institutions from New York to London and Tokyo are dissecting their exposure to the empire of Gautam Adani, who was Asia’s richest man only a few days ago.

The billionaire’s interests, which include ports, power plants and coal mines, have fallen in value by US$125 billion (S$164.1 billion) since Hindenburg Research’s fraud allegations last week. The Indian tycoon vehemently denied the claims but was forced to abruptly scrap a US$2.4 billion stock offering for his flagship Adani Enterprises.

His backers include Citigroup, Credit Suisse Group and Barclays. They are among a swathe of banks pursuing a range of options to curb the risk of losses, including asking for more collateral and halting the use of Adani company securities to cover margin loans to wealth clients.

Lending to India’s tycoons and their companies was until recently a money-spinner for global banks seeking to cash in on one of the world’s fastest-growing economies. The country has also been viewed as a buffer to growth in China, whose economy was pummelled by the now-abandoned Covid-zero policy and crackdowns on private enterprise.

“India is clearly a difficult place to lend money,” said Professor Tom Kirchmaier of the Centre for Economic Performance at the London School of Economics. “Banks are still desperate for business, and this is just a reminder that India may not be able to compensate for a decline of Chinese business.”

Many global lenders are also still smarting from the implosion of another billionaire’s company, Archegos Capital Management, which failed in 2021. Multibillion-dollar losses, regulatory fines and sweeping management changes followed that collapse – a debacle the banks are keen to avoid repeating.

“Banks would not want to be the last ones left holding the bag – just look at Archegos and Greensill Capital and what happened to the banks that reacted slowly,” said National University of Singapore professor Mak Yuen Teen, who researches corporate governance.

Sizing up risks

Adani showcased its extensive local and international bank relationships in a 413-page rebuttal to the short-seller’s allegations, which it called “a calculated attack on India”.

Some of the most prominent names in banking – including Singapore’s DBS Group – are listed among 29 supporters, though the exact nature of their ties was not disclosed. DBS declined to comment to The Straits Times on Thursday.

Adani Group, which comprises half a dozen major companies, put up about US$300 million worth of shares to maintain its collateral cover on a US$1 billion loan, Bloomberg News reported. The loan was made by a group of banks including Barclays.

Citigroup’s wealth unit, meanwhile, stopped accepting securities issued by Adani companies as collateral for margin loans amid the stock rout, according to an internal memo seen by Bloomberg News. Credit Suisse’s private banking unit had also made a similar change for the bonds.

Mizuho Financial Group said it had past dealings with Adani and is examining the allegations being levelled against the conglomerate. Mizuho Securities has managed debt issuance by Adani companies, public documents show.

Meanwhile, UBS Group chief executive officer Ralph Hamers has said the bank’s exposure to the meltdown is not a matter of concern for the Swiss bank.

Central bank questions

India’s central bank has asked lenders for details of their exposure to the Adani companies, people with knowledge of the matter have said. Domestic banks are standing by Mr Adani, who has close ties to the Narendra Modi government.

Mr Dinesh Khara, chairman of State Bank of India – the country’s biggest lender – told Bloomberg that its loans to the Adani Group are backed by cash-generating assets, and overseas exposure is “nominal”. The lender has given loans of as much as US$2.6 billion to companies in the Adani conglomerate, or about half of what is allowed under the rules, according to a person familiar with the matter.

Indian lender IDFC First Bank earlier on Thursday said it is “comfortable” with its ties to the Adani Group. Its outstanding funded exposure represents just 0.06 per cent of the bank’s funded assets, while non-funded outstanding is 0.51 per cent, and it is receiving payments on schedule. BLOOMBERG