Adani stock rout worsens, erasing third of group value, as key share sale fails to lift mood

Singapore - The crisis of confidence plaguing Mr Gautam Adani is deepening, with a stock rout erasing one-third of the market value in the group’s companies, as completion of a key share sale failed to lessen concerns over Hindenburg Research’s fraud allegations.

All the 10 stocks tied to the billionaire’s Adani Group dropped in Mumbai trading, with Adani Total Gas leading the declines with a 10 per cent plunge, a daily limit.

Adani Enterprises, the conglomerate’s flagship firm that completed a US$2.5 billion (S$3.3 billion) follow-on stock sale on Tuesday, lost as much as 5.9 per cent. 

The declines show that Adani Enterprises’ latest fund raising is not enough to restore investor confidence, with US-based Hindenburg’s scathing report slashing US$79 billion or one-third of the market value from the group’s stocks.

Prolonged weakness in the shares may also undermine broader sentiment towards India, until recently a top investment destination for Wall Street.

“It is a wait-and-watch situation. They have obviously found the investors, but concerns of Hindenburg Research have not been addressed,” said Mr Brian Freitas, an analyst at Smartkarma.

The offering by Adani Enterprises was India’s largest follow-on share sale, and was fully subscribed on the final day, aided by a last-minute surge in demand from institutional investors. Interest from retail investors – who Adani was hoping to attract – was notably weak. The firm was expected to announce the final price for its offering later on Wednesday.

The sell-off in Adani shares on Wednesday stands in stark contrast to India’s equity benchmarks, which rose nearly 1 per cent.

The credit market appears to have welcomed the fund-raising success, with nearly all the US dollar bonds issued by the Adani group of companies extending gains into a second day. The flagship firm’s latest stock offering is partly intended to help repay debt.

That said, if Adani’s stock prices decline further, the pressure will grow on the conglomerate’s debt using shares as collateral: the group already has put up millions of dollars worth of shares to maintain its collateral cover on a US$1 billion loan after the recent stock meltdown, according to people familiar with the matter.

“The important thing to watch now post-allotment is what level of holding period the investors are willing to have on these shares,” said Mr Sameer Kalra, founder of Target Investing in Mumbai. “Having a few investors getting most of the allotment, there is a risk of some portion being sold immediately.” BLOOMBERG