Adani group's market rout hits $72 bn as fight with Hindenburg escalates

Billionaire Gautam Adani’s 413-page attempt to restore confidence in his business empire is falling flat with investors, as stock-market losses deepen and key dollar bonds sink to fresh lows.

Shares of all Adani Group firms slumped on Monday despite the Indian conglomerate’s lengthy weekend rebuttal to allegations of fraud by short seller Hindenburg Research. The three-day selloff has now erased nearly $72 billion of market value amid a share sale by Adani’s flagship that was meant to underline the tycoon’s ascension on the global stage.

While the Adani Group has portrayed Hindenburg’s allegations as baseless and an attack against India itself, the saga is reviving longstanding investor concerns about the conglomerate’s corporate governance. It also threatens to weaken broader confidence in India, until recently a top investment destination for Wall Street, and accelerate a nascent shift toward a reopening China.

 

“Not sure if Adani’s rebuttal is enough to assuage investor concerns. Just because things are disclosed and known does not make them right,” said Brian Freitas, an analyst at Smartkarma. “How does a group that big explain no analyst coverage and no mutual fund holdings?”

In its rebuttal published Sunday, Adani said that some 65 of the 88 questions raised by Hindenburg have been addressed in the conglomerate’s public disclosures, describing the short seller’s conduct as “nothing short of a calculated securities fraud under applicable law.” The group reiterated it will “exercise our rights to pursue remedies to safeguard our stakeholders before all appropriate authorities.”

Hindenburg said Adani’s rebuttal ignored all its key allegations and was “obfuscated by nationalism.” The conglomerate’s statement failed to specifically answer 62 of Hindenburg’s 88 questions, the short seller said Monday, and conflated the company’s “meteoric rise” and the wealth of Asia’s richest man “with the success of India itself.”

Adani’s stocks were some of the best performers last year not just in the local market, but also on the broader MSCI Asia Pacific Index.

The selloff continued on Monday with Adani Total Gas Ltd. and Adani Transmission Ltd. down as much as 20%. The flagship Adani Enterprises also erased its earlier gain of 10% to trade 2% lower. 

Adani Enterprises’ shares remain below the floor price set for the follow-on equity sale. The company is seeking to raise 200 billion rupees ($2.5 billion).

Overall subscription for the share offer by Adani Enterprises, which closes on Tuesday, was at just 2% as of 13:42 p.m. in Mumbai on Monday. Retail investors had bid for 3% of the shares on offer to them, while the company’s employees bid for 10% of the shares for their category. The non-institutional part that includes wealthy individuals had been taken up 1%. Institutional investors bid for 4,576 shares, a fraction of the 12.8 million on offer.

While investors in Indian public offerings typically wait until the last day of the sale to place bids, concerns have risen that Hindenburg’s report will hurt sentiment.

There will be no change to the pricing of the additional share sale and it will proceed as scheduled, Adani Group CFO Jugeshinder Singh told news channel CNBC TV 18 in an interview.

A decline in the dollar bonds of the Adani Group companies quickened on Monday. Adani Ports & Special Economic Zone Ltd.’s 2027 note dropped 6.2 cents, Bloomberg-compiled data show.

At least four group notes including debt of Adani Electricity Mumbai Ltd. have fallen to distressed levels below 70 cents on the dollar that generally indicate mounting concern about creditworthiness.

“The risk-reward for Indian markets has just taken a turn for the worse,” said Charu Chanana, a strategist at Saxo Capital Markets. “Foreign investor confidence has been dented and will take time to repair, so I would be rather cautious. India anyway started this year trading at a premium to other EMs, and the Adani saga has once again questioned whether that is justified.”

--With assistance from Finbarr Flynn, Devidutta Tripathy and Anders Melin.