SINGAPORE – Pressure mounted for Indian billionaire Gautam Adani to quickly address concerns over his conglomerate’s financial health as a brutal stock rout wiped out more than half of the value of his companies.
About US$125 billion (S$164 billion) has evaporated in the market capitalisation of his group’s 10 stocks since United States short-seller Hindenburg Research last week claimed that offshore shell entities were used to inflate Adani Group’s revenues and manipulate stock prices. The flagship Adani Enterprises sank a record 35 per cent in intraday trading, taking its decline to 70 per cent in seven sessions.
The crisis of confidence in the Adani Group has become a national issue, with both Houses of India’s Parliament adjourned for a second day on Friday after opposition lawmakers shouted anti-Adani slogans and called for a parliamentary investigation into the stock rout.
The main opposition Congress party is planning nationwide protests on Monday to highlight the risks to millions of small investors because of the exposure of state-owned institutions in Mr Adani’s businesses and draw attention to the embattled tycoon’s links with Prime Minister Narendra Modi.
The Congress party will protest in front of the offices of Life Insurance Corporation and the State Bank of India, general secretary K.C. Venugopal said in a statement. “The government cannot jeopardise the hard-earned money of the people of India to profit the crony friends of the Prime Minister.”
Mr Adani on Friday denied that his rise to become Asia’s richest man – a title he has now lost – was due to a close relationship with Mr Modi, who is also from Gujarat state.
“These allegations are baseless,” Mr Adani told India Today television, adding that their shared origins made him an “easy target” for such claims.
“The fact of the matter is that my professional success is not because of any individual leader,” he said.
The continued stock rout reflects worries about Mr Adani’s access to funding after he scrapped a key stock offering this week, and as long-held concerns about the group’s debt load were propelled onto the global stage by Hindenburg.
Mr Adani is in talks with creditors to prepay some loans backed by pledged shares, as some banks have stopped accepting the securities of the group, whose interests range from ports to energy, as collateral in client trades.
“Clearing of pledges may not help. Now the only point is investors are not just interested in clearing pledges. They want concrete plans and actions,” said Mr Sameer Kalra, founder of Target Investing in Mumbai. “The use of every rupee on the balance sheet is critical now. There are a lot of stakeholders.”
In a reprieve for the Adani Group, its bonds rallied on Friday after Goldman Sachs and JPMorgan Chase told some clients that the debt can offer value due to the strength of certain assets. All 15 dollar debt securities, some of which had fallen into distressed pricing, advanced – partly helped by news that Adani Ports and Special Economic Zone made a coupon payment on schedule.
“There is distressed value on such investments but they are risky; they deserve such high yields,” said Ms Rakhi Prasad, an investment manager with Alder Capital. “I won’t recommend either shares or bonds in a falling-knife market.”
Meanwhile, banks have been tightening scrutiny on Adani companies’ securities. Units of Credit Suisse Group and Citigroup earlier this week stopped accepting some securities issued by the companies as collateral for margin loans to wealthy clients.
Separately, former Conservative minister Jo Johnson, who is also the brother of former British prime minister Boris Johnson, has resigned as a director of Elara Capital, a London-based firm embroiled in the controversy at the Adani empire, the Financial Times reported. The firm was one of the 10 bookrunners on the record share sale that Adani Enterprises abruptly abandoned earlier this week.
Mr Adani’s proposed loan prepayment would see lenders release some of the stock in the group’s companies that was pledged as collateral, Bloomberg News reported, citing a person with knowledge of the matter. The Indian group has not faced margin calls on these pledges and is seeking the prepayment proactively, the person added.
The tycoon’s backers include Citigroup, Credit Suisse Group and Barclays. They are among banks pursuing a range of options to curb the risk of losses.
“Contagion concerns are widening, but are still limited to the banking sector,” said Ms Charu Chanana, a strategist at Saxo Capital Markets. “The focus remains on further risks of index exclusions, while a coherent response to the fraud allegations from the Adani Group is still awaited.” BLOOMBERG
