Adani rout hits $65.7b as stocks plunge by daily limits; market regulator said to study short-seller report

The Adani Group has said it is exploring legal action against Hindenburg Research. PHOTO: REUTERS

SINGAPORE – The sell-off in billionaire Gautam Adani’s corporate empire accelerated on Friday, erasing more than US$50 billion ($65.7 billion) of market value in less than two sessions as Asia’s richest man struggles to contain the fallout from a scathing report by US short-seller Hindenburg Research.

India’s market regulator has increased scrutiny of deals undertaken by the Adani Group over the past year and will study the report by Hindenburg to add to its own ongoing preliminary investigation into the group’s foreign portfolio investors, according to two sources aware of the matter.

The rout is piling pressure on the Indian tycoon as it erodes his net worth and threatens to sour investor sentiment towards the US$2.5 billion share sale by his flagship company, Adani Enterprises. Losses accelerated even after Adani Group disputed Hindenburg’s allegations in a Thursday call with bond holders and pledged to release a detailed rebuttal on Friday.

Adani Enterprises lost more than 19 per cent on Friday, sliding below the 3,276-rupee level at which anchor investors were allotted shares in the follow-on equity sale. Some, like Adani Green Energy and Adani Total Gas, plunged by the daily 20 per cent limit, adding to a US$12 billion sell-off in group companies on Wednesday. Volumes in these stocks were at least triple their three-month average.

Adani Wilmar, the group’s joint venture with Singapore-listed Wilmar International that listed in India in 2022, fell 5 per cent.

The sell-off hit sentiment in the broader Indian market as trading resumed after Thursday’s holiday. The benchmark NSE Nifty 50 Index lost more than 1.5 per cent, the worst performance in Asia, with bank stocks among those leading losses as investors fretted over their exposure to the Adani Group.

“The issues strike at the heart of the Indian corporate sector scene, where a number of family controlled conglomerates dominate,” said Mr Gary Dugan, chief executive of the Global CIO Office. “By their very nature, they are opaque and global investors have to take on trust the issues of corporate governance.”

“After last year’s stellar performance, Indian equities and any high-profile company’s shares are open to downside risk of profit-taking,” Mr Dugan added. “Hence, the broader Indian equity market could be at risk of further downside, with Adani the catalyst.”

Adani wealth

The slump in Adani shares follows breathtaking gains in recent years, including some of Asia’s biggest returns in 2022. The five-year advance in Adani Enterprises trumped even the likes of Mr Elon Musk’s Tesla, vaulting Adani from relative obscurity into the ranks of the world’s richest people.

The current rout has plunged Mr Adani’s fortune below the US$100 billion threshold he surpassed in April 2022. It stood at about US$97 billion as at 12.24pm in Mumbai, according to the Bloomberg Billionaires Index, down roughly 15 per cent from Wednesday’s close.

Concerns about the group’s finances have percolated throughout the tycoon’s rise, with CreditSights saying in August that Mr Adani’s conglomerate is “deeply overleveraged” with “stretched balance sheets”.

But the Hindenburg report has put an unprecedented spotlight on the group’s corporate governance – as well as that of India as a whole.

Hindenburg issued a report on Jan 24 detailing wide-ranging allegations of corporate malpractice following a two-year investigation into the tycoon’s companies, saying it had uncovered a brazen scheme of stock manipulation and accounting fraud dating back decades.

Adani Group has said it is exploring legal action after a “maliciously mischievous, unresearched” report by the short-seller. Hindenburg has said it fully stands by its report, adding that any legal action taken against it would be meritless, according to a statement on Twitter.

Companies linked to Adani Group plan a detailed response on Friday to the report that they labelled as “bogus”, according to bond holders who joined a conference call with Adani executives.

On the call, investors were told that the United States-based short-seller’s assertions of accounting fraud were “devoid of facts”.

Share sale

The timing of Hindenburg’s report has confounded market watchers as it came when Adani Enterprises was seeking to attract a broader network of local and global investors for its share sale.

The offering already lured a number of anchor investors before the Hindenburg report became news, though retail investors and high-net-worth individuals can bid for shares starting today till Jan 31. The offering was off to a tepid start, with the portions reserved for retail investors and the company’s employees each getting bids for 1 per cent of the shares on sale as at 11.30am in Mumbai. The institutional investors’ part had yet to see any bids, stock exchange data showed.

That said, investors in Indian public offerings typically wait until the last day of the sale to place bids. Some market watchers said the impact to the broader market will be limited.

The bulk of India’s equity benchmarks is made up of “very high quality” banks and consumer and IT services companies, and the risk to the indexes from Hindenburg’s report on Adani Group “is not meaningful”, said Mr Neelkanth Mishra, co-head of Asia-Pacific equity strategy and India equity strategist at Credit Suisse, on Bloomberg Television.


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