(Bloomberg) — The crisis engulfing Gautam Adani is worsening as his conglomerate’s shares and bonds tumble to new lows, heightening concern about the Indian billionaire’s access to financing in the wake of fraud allegations by short seller Hindenburg Research.
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The tycoon’s flagship Adani Enterprises Ltd. sank as much as 20% on Thursday, adding to a 28% tumble in the previous session that prompted the company to abandon a $2.4 billion follow-on share sale and return the money to investors.
His business empire has now lost more than $100 billion — more than a third of its value — since Hindenburg unveiled its short position. The group’s key dollar bonds are trading at distressed levels and signs of contagion in Indian markets are increasing.
While Adani’s company has rebutted the fraud claims and the billionaire himself said in a video speech on Thursday that the scrapped equity offering will have no impact on operations, investors remain skittish.
The big worry looming over the conglomerate — which has expanded into nearly every corner of the Indian economy — is that lenders and other counterparties start to pare their exposure. In one sign of how risk perceptions are rapidly changing, units of Credit Suisse Group AG and Citigroup Inc. have stopped accepting some securities issued by Adani’s companies as collateral for margin loans. India’s central bank has asked lenders for details of their exposure to the conglomerate, according to people familiar with the matter.
“The biggest risk is if Adani Group faces a severe deterioration in access to financing, particularly at its highly leveraged entities,” Leonard Law, a senior credit analyst at Lucror Analytics, wrote in a note. “That said, the group can likely continue to raise funds from onshore banks and bonds for now.”
The extent of the damage to Adani’s empire may well depend on how Narendra Modi’s government responds to the crisis. The prime minister has so far stayed mum on Hindenburg’s allegations, while India’s minister for tech and railways told Bloomberg TV that the economy can withstand the rout in Adani shares. Modi and Adani are widely thought to be close, though the tycoon has in the past said he hasn’t sought any political favors.
Hindenburg Research last week accused the Adani group of “brazen” market manipulation and accounting fraud, setting off an intense selloff in the stocks. The conglomerate has repeatedly denied the allegations, called the report “bogus,” and threatened legal action.
“The fundamentals of our company are strong. Our balance sheet is healthy and assets, robust. Once the market stabilizes, we will review our capital market strategy,” Adani said in the video speech Thursday.
The rout has dragged down the broader Indian market. The MSCI India Index, which includes eight of the group’s stocks, has dropped about 9% from a December peak, inching closer to a technical correction. Eight of the 10 worst-performing stocks in the MSCI Asia Pacific Index this year are Adani-linked companies.
“One has to be very watchful and investors would be well advised not to tinker with Adani stocks till there is clarity on the way forward,” said Alok Churiwala, managing director of Churiwala Securities Pvt. “The stocks may recoup some of the losses but to come back to past levels, it’s going to be tough because they are going to be scrutinized even more.”
Hindenburg has said it has short positions in Adani’s US-traded bonds, some of which saw the biggest decline in global secondary trading on Wednesday.
Two of the dollar bonds issued by Adani Ports and Special Economic Zone Ltd., maturing in 2027 and 2029, have both lost nearly 20% since Hindenburg released its report, according to Bloomberg-compiled data. Adani Green Energy Ltd.’s Sept. 2024 note has plummeted nearly 30%.
Adani Group has $34.7 million of coupon payments due this week on its dollar bonds.
Hindenburg says key Adani companies are highly leveraged relative to the industry average, and that four of them have negative free cash flow, including the flagship. In Adani’s rebuttal, it said the group’s net debt to EBITDA ratio dropped to 3.2 times as of March 2022, from 7.6 times in 2013. It also stated that the leverage ratio is in line with industry benchmarks.
Looking at valuations, “there could be more downside to the Adani group shares,” said Nitin Chanduka, an analyst at Bloomberg Intelligence. “Banks could take a knock in case foreign outflows intensify and there is a default on bonds but so far they haven’t missed interest payments.”
–With assistance from Abhishek Vishnoi, Matt Turner, Josyana Joshua, Filipe Pacheco and P R Sanjai.
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