GOtam Adani Ambush is no stranger. The Indian tycoon was kidnapped in 1998 and released after reportedly paying a multimillion-dollar ransom. In 2008, he hid in the basement of the Taj Mahal Palace Hotel in Mumbai after a terrorist attack.
Now, he faces a different kind of attack — not against himself, but against the conglomerate that bears his name. In one week, the market capitalization of the Adani Group’s ten listed companies wiped off a staggering $108 billion, or nearly half (see Figure 1). Bond yields for some of these companies have sometimes spiked into distressed territory (see Figure 2). Mr. Adani’s personal fortune, which was ranked third in the world at the start of the year, fell by more than $50 billion. On Feb. 1, a $2.5 billion secondary share offering by his flagship public entity, Adani Enterprises, was abruptly withdrawn.rout, continue as economist Published Feb. 2, it casts doubt on one of India’s most powerful business institutions, the fate of its pharaonic ambitions in everything from clean energy to media, and India’s version of tycoon-driven capitalism.
The bleeding is caused by what looks like a peashooter – next to an industrial empire that spans ports, power stations, and many other places. On January 24, New York investment company Hindenburg Research published a report accusing Adani Group of implementing “the biggest scam in corporate history.” Hindenburg, who shorted some internationally traded Adani bonds and derivatives, detailed allegations of stock manipulation and other financial mischief. The aim, according to short sellers, is to inflate the market value of Mr Adani’s listed company. Within days, the Adani Group published a 413-page rebuttal, calling Hindenburg’s report “full of lies” — a “deliberate attack” on India itself. Adani Group said it had been “complying with all laws”.
The strong response initially looked like enough for Adani Enterprises to complete its secondary share offering, which is set to price on February 1. Retail investors have shown tepid interest as existing shares in the company trade below their offering price.Nonetheless, Adani Enterprises managed to find anchor investors (among them Indian life insurance companies, or license, State Bank of India and some big US banks) and a handful of deep-pocketed backers who clearly don’t mind paying the odds. These include International Holding Company, an Emirati fund that invested $400 million in Adani companies, and reportedly the family offices of several wealthy Indians.
Then, on the afternoon of Feb. 1, Bloomberg reported that Credit Suisse had stopped accepting Adani’s bonds as collateral for margin loans to its private banking clients. Shares of Adani Enterprises plummeted nearly 30%. Shares in other Adani companies also fell. Their bond prices took another big hit after paring earlier losses the previous day. Later that evening, Adani Group canceled the secondary offering, citing “unprecedented” market conditions.
What happens next is uncertain. Adani executives have been dispatched around the world to reassure nervous investors. An internal risk team initially created in response to the covid-19 shock and then deployed to address issues arising from supply chain disruptions caused by the war in Ukraine has been put on high alert. Spending plans for the next two to three years are said to be funded. In a statement canceling the share issue, Mr Adani said: “Our balance sheet is very healthy, our cash flow is strong, our assets are secure and we have an impeccable track record in repaying our debt.”
The threat to the Empire does not seem to exist. Mr. Adani is considered an able operator and his company has many valuable assets. They operate some of India’s largest ports (plus some in Australia, Israel, and Sri Lanka), store 30% of food, operate one-fifth of electricity transmission lines, accommodate one-quarter of commercial air traffic, and About one-fifth of cement is produced. A Singapore joint venture seeks to become India’s largest food company. In the last fiscal year, the total revenue of the group’s listed companies was US$25 billion, equivalent to 0.7% of India’s gross domestic product, with a net profit of $1.8 billion. Their combined annual capex is about $5 billion, or 7 percent of the total spending of India’s 500 largest non-financial corporations.
In its statement, Adani insisted that the decision to cancel the secondary offering “will not have any impact on our existing operations and future plans”. No rating agencies have yet reassessed the group’s investment-grade debt. So far, Hindenburg’s allegations have also not resulted in global stock index compilers removing Adani from their benchmarks. One of the index managers, FTSE Russell said no action was planned at this time. other, MSCIwhich is expected to weigh in soon.
However, it is hard to believe that Mr Adani’s nation-building plans will not be affected. His team expects to spend more than $50 billion on investments between 2023 and 2027.It is building a new airport near Mumbai, spending $5 billion on three seaports, and plans to Pohang, a Korean conglomerate. The renewable energy and hydrogen projects it envisions are seen as cornerstones of an effort backed by Prime Minister Narendra Modi to transform the country into a global clean energy powerhouse. All of this will require a lot of capital, some of which should have come from new equity offerings. If yields on Adani’s bonds remain high while its shares are depressed, securing the necessary funding will be difficult.
There could then be spillover effects on other companies in India.The ripple effect on the company so far license and State Bank of India, though painful but not life-threatening; their shares fell 8% and 5%, respectively, on Feb. 1. license Adani shares account for less than 1% of its assets under management, the company said. Few Indian mutual funds hold significant stakes in the group of companies (a fact that Hindenburg cites in his report as evidence of the lack of confidence in them in the Indian market). State Bank of India, which is also a lender to the group, said it has no concerns about the loans to Adani Corp, which are secured by cash-generating assets. CLSAA brokerage sees Indian banks’ combined exposure to Adani’s five largest companies at $24 billion — 0.5 percent of all loans in the Indian banking sector — manageable.
Foreign investors dare not take risks. Indian equities have underperformed other emerging markets over the past week (see Figure 3). In just two days, Friday 27 January and Monday 30 January, global funds pulled a net $1.5 billion from Indian equities. Compliance-conscious Western multinationals may think twice before striking new partnerships with tycoons, which has been their preferred route into the vast Indian market in recent years.
As this week’s drama unfolds, Adani himself is abroad, formally taking ownership of the Haifa port he will acquire in 2022 for $1.2 billion — and no doubt sending an unofficial message to his foreign backers. Reassuring information. “I assure you that in the years to come we will transform the skyline around us,” he told his Israeli audience on Jan. 31. He starts with a lot of repair work on the home. ■
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