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Indian tycoon Adani hit by more losses as probe calls mount

Magnate's net worth had halved to $61 billion by Friday, after last week's report

Published: Fri 3 Feb 2023, 7:20 PM

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Shares in troubled Adani Enterprises gyrated on Friday, tumbling 30 per cent and then rebounding after more than a week of heavy losses that have cost it tens of billions of dollars in market value.

The company, the flagship of India’s second-largest conglomerate, cancelled a share offering meant to raise $2.5 billion earlier this week after US short-selling firm Hindenburg Research issued a report accusing it of market manipulation and other fraudulent practices. Adani denies the allegations.

Opposition lawmakers blocked Parliament proceedings for a second day on Friday, chanting slogans and demanding a probe into the business dealings of Adani, who is said to enjoy close ties with Prime Minister Narendra Modi.

At least one prominent international investor, French oil giant TotalEnergies, defended its investments in Adani. TotalEnergies said on Friday it has limited exposure to the current problems and has not re-evaluated its stakes in Adani businesses. The French company said it had carried out due diligence when it making $3.1 billion in investments in Adani, and that the entities TotalEnergies invested in “are managed in accordance with applicable regulations.”

Credit rating agency Fitch said there was no immediate impact on credit ratings for the Adani companies. The agency said its ratings for Adani Ports and Special Economic Zone, Adani Green Energy and Adani Transmission were not changed.

Moody’s warned on Friday that the recent sell-off in Adani group’s shares after a short-seller’s report could reduce the Indian conglomerate’s ability to raise capital, while its peer Fitch saw no immediate impact on its ratings. “These adverse developments are likely to reduce the group’s ability to raise capital to fund committed capex or refinance maturing debt over the next 1-2 years. We recognise that a portion of the capex is deferrable, and the rated entities do not have significant maturing debt until FY2025,” Moody’s said in a statement.

The market watchdog, the Securities and Exchange Board of India, has not commented. The Economic Times newspaper reported, citing unnamed Sebi sources, that it had asked stock exchanges to check for any unusual activity in Adani stocks.

Shares in Adani Enterprises fell as much as 30 per cent, to Rs1,017, on Friday. At the end of trading, the price had recovered to Rs1,531 but was still down by 2 per cent. The company’s share price has plunged more than 50 per cent since Hindenburg released its report last week, when it stood at Rs3,436. Stock in six other Adani-listed companies was down 5 per cent to 10 per cent on Friday.

So far there has been no indication that the company’s woes might threaten the wider financial sector in India. Its equities market is large enough to sustain the fallout at this moment, said Brian Freitas, a New Zealand-based analyst with Periscope Analytics who has researched the Adani Group. “Adani stock forms a small part of the equities market and investor concerns right now are restricted to the company, not the whole system or market itself,” Freitas said. India’s Nifty and Sensex indexes were both higher on Friday.

It could take time for problems to surface, Shilan Shah of Capital Economics said in a report. “From the macro perspective there are few signs of contagion,” he said. “But it is too early to sound the all clear.”

The S&P Dow Jones indices said on Thursday it would remove Adani Enterprises from its sustainability indices from Tuesday, following a “media and stakeholder analysis triggered by allegations of stock manipulation and accounting fraud.”

That might dent the Adani Group’s sustainability credentials and could affect investor sentiment, Freitas said.

Gautam Adani, who made a vast fortune mining coal and trading before expanding into construction, power generation, manufacturing and media, was Asia’s richest man and the world’s third wealthiest before the troubles began with Hindenburg’s report.

By Friday, his net worth had halved to $61 billion, according to Bloomberg’s Billionaire Index, where he dropped to the 21st spot worldwide.

He has said little publicly since the troubles began, though in a video address after Adani Enterprises cancelled its already fully subscribed share offering he promised to repay investors. The company has said it is reviewing its fundraising plans.

Hindenburg’s report said it was betting against seven publicly listed Adani companies, judging them to have an “85 per cent downside, purely on a fundamental basis owing to sky-high valuations.” Other issues in the report included concerns over debt, alleged use of offshore shell companies to artificially raise share prices and past investigations into fraud.

Adani’s speedy, debt-led expansion in recent years caused his net worth to shoot up nearly 2,000 per cent. Even before last week, critics said his ascent was aided by his apparent close ties to Modi and his government. Analysts say he has been successful at aligning his priorities with those of the government by investing in key sectors, but point out that he also has major infrastructure projects in states that are ruled by opposition parties.

“The question now turns to the future of the Adani Group and how they will grow,” said Aveek Mitra, founder of Avekset Financial Advisory.

As a company heavily involved in infrastructure — from airports and ports to highways — it needs financing to grow in order to service its debt, which stands at $30 billion, out of which $9 billion is from Indian banks.

Adani may be able to sell some assets and continue its expansion, but at a much slower pace than earlier, Mitra said.

“Banks, financial institutions and investors will think five times before investing now,” he added.



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