Adani Group in trouble

Indian opposition lawmakers demand a parliamentary investigation into Adani after a US-based short seller accused the company of fraud as group losses reached $100 billion.

The crisis surrounding tycoon Gautam Adani’s troubled empire has intensified, with market losses topping $100 billion after a United States short seller accused it of pulling “the largest con in corporate history,” prompting opposition lawmakers in India to call for an investigation into Adani Group.

Context

A day after Adani Group’s flagship firm abandoned a $2.5 billion stock offering intended to help cut debt levels, boost confidence, and expand its shareholder base, a session of the lower house of India’s Parliament was suspended amid raucous protests on Thursday.

The opposition Congress party has called on Prime Minister Narendra Modi to address the subject and sought the formation of a Joint Parliamentary Committee or an investigation under the supervision of the Supreme Court.

According to opposition leader Mallikarjun Kharge, “we seek a full investigation into the Adani problem, either by a Joint Parliamentary Committee or a Supreme Court-monitored panel.” Daily reporting of the issue’s inquiry should be done as well.

The Hindenberg

The New York-based investment research firm Hindenburg Research charged Adani Group with engaging in “brazen stock manipulation and accounting fraud over the course of decades” in a study published last week. High debt and the values of seven listed Adani companies were other issues that were brought up.

The aggregate market value of the group companies has decreased by almost half since Hindenburg’s report on January 24. Market capitalization for Adani Enterprises, which is said to as an incubator for Adani’s businesses, has decreased by $24 billion.

Group has refuted the accusations, and its finance chief referred to the Hindenburg report as “a vicious blend of selected misinformation and old, unsubstantiated, and outdated claims that have been tried and rejected by India’s highest courts.”

Adani’s take

While this was going on, Gautam Adani produced a video message to investors in which he insisted that his company’s fundamentals were “solid” and that its track record of repaying debt was “impeccable.”

He said that everything was secondary and that the interests of his investors came first. Therefore, “we have withdrawn” the share offering in order to protect the investors from potential losses.

On Thursday, shares of Adani Enterprises fell by about 23 percent, reaching their lowest price since March 2022. Adani Ports and Special Economic Zone, Adani Total Gas, Adani Green Energy, and Adani Transmission all saw losses of around 10% each, while other group companies also experienced pressure.

Adani, 60, is also no longer the richest person in Asia after falling from third place last week to 16th place on Forbes’ list of the world’s richest people.

Stocks would plunge unless Adani is able to win back institutional investors’ trust, according to Avinash Gorakshakar, head of research at Mumbai-based Profitmart Securities.

According to Sat Duhra, manager of a $1 billion Asian dividend income fund at Janus Henderson Investors, Adani’s wipeout could become more widespread if it causes a greater shift in sentiment.

Since more liquid names are sold first, he added, “the Indian stock market indexes are driven in significant part by a small set of companies and any shift in sentiment and flows will have a disproportionate impact on indices.”

We own fewer than 2% of Indian stocks, and given the current problems, we wouldn’t even think about buying more until there was a significant correction.

Concerned regulators

Banks are also pulling back as authorities move in; Citigroup’s wealth unit announced that it has ceased offering clients margin loans against Adani securities, while Bloomberg News reported that Credit Suisse had done the same.

Even though the Adani Group has a gross debt balance of 2.2 trillion rupees ($26.86 billion), major banks have indicated that they have no credit exposure to the company. The company’s stock is tightly held, and mutual funds also have little exposure.

Market sentiment

Everyone is keeping a tight eye on those debts, according to Mumbai-based fund manager Pankaj Pathak of Quantum Asset Management. The limited ownership of those bonds, he noted, “but on the domestic debt side, we scarcely see any influence on the broader corporate bond market because of what is occurring in Adani.”

Market fluctuation and volatility are anticipated, according to David Chao, a global market strategist at Invesco.

Although I don’t anticipate any sort of near-term resolution between Adani Group and Hindenburg, Chao added, “We don’t think that there will be a default very soon.”

However, Chao believes that the selloff will contribute to a reduction in Indian stock values to “palatable levels” for investors.

The effect on India’s larger macroeconomic picture is minimal. I believe that this argument is ultimately between two businesspeople.