Gautam Adani’s business empire saw more than $145bn taken from its value by a US short-seller. This exposes the difficulties the Indian tycoon faces in regaining investors’ confidence.
Hindenburg Research accused Adani of stock manipulation and accounting fraud . This sell-off has erased more 60 percent of Adani’s publicly traded companies’ value and has created an empire that stretches from ports to airports and energy.
Adani strongly denied Hindenburg’s claims, but shares remain under pressure. The overall market capitalisation for the listed groups fell to the lowest level since Hindenburg made its allegations on Friday.
The financial crisis that enveloped the vast array of businesses has led to the billionaire’s fortune shrinking by $79bn over the course of the year. This allowed Mukesh Ambani, an Indian industrialist, to regain the title of Asia’s wealthiest person.
Abhishek Jain (head of research at Arihant Capital, Mumbai) stated that some of the companies were too expensive and overpriced at more than 100 times their PE valuation. He said that some stocks had seen a “hammering” from investors, which meant they were at attractive prices. “Can be interesting to take a look [at]”.
Adani had been expanding his empire at a breakneck pace before the turmoil of this year. He took on more debt and pushed into areas that required significant investment, such as hydrogen and solar.
However, there are signs of retrenchment. Many Adani companies have stopped future investments, including an $847mn coal power plantacquisition. Adani Power Maharashtra Limited’s agreement to create a cement mill in collaboration with Orient Cements was canceled last week.
Jugeshinder Singh, group chief financial officer, stated to analysts that he would not make any new commitments until the volatility period is resolved. This was in response to Adani Enterprises’ results, which were released this month.
Adani Enterprises’ decision to cancel a $2.4bn share sales at the beginning of March was one of the most devastating blows caused by the crisis. Moody’s Ratings has lowered its outlook on Adani Group companies since then.
Adani businesses issued dollar bonds and Adani Ports bonds for $750mn have been sold. Adani Green Energy bonds and Adani Ports bonds for $750mn are due to mature in 2024 and 2027, respectively. Each bond trades at $0.80 per $1.
The head of Asia bond syndicatation at a Western investment bank stated that “people have no problem buying Indian credit.” They won’t touch Adani.Analysts are still focusing on the Adani empire, which is still under intense scrutiny. They recommend that Adani reduce leverage and reassure investors about the strength of its underlying businesses.
Varun Fatehpuria (founder and chief executive at Daulat, a digital wealth management platform based in Kolkata) stated that he should focus on conserving cash and prepaying debt. “People want more transparency and clarity about the true health of the business.
Stresses have also been caused by Adani’s family taking out loans backed by shares of listed companies. Adani, who was subject to a margin call exceeding $500mn, repaid a $1.1bn loan that was share-backed.
According to an insider, the Adani Group executives want to repay $1bn in outstanding share-backed loans that were taken by family members or “promoters”.
Adani companies have begun paying creditors earlier than expected to ease bondholders. Karan Adani, Adani Ports and Special Economic Zone managing Director, stated that the company will repay or prepay more than $600mn in loans in the next financial year to reduce its debt to earnings ratio. Last week, the company paid Rs5bn (60.3mn) to an Indian mutual funds against maturing commercial paper.
Abhishek Jain (head of research at Arihant Capital, Mumbai) said that the goal was to boost sentiment among bondholders and market participants by paying off a lot early.
Adani’s international ambitions are still evident despite the recent retrenchment. It has been one month since Adani visited Israel for the completion of the group’s acquisition of Israel’s strategic Haifa Port. Adani Group claimed it bid for a steel plant under construction in central India’s Chhattisgarh. The government is now selling the plant.
Adani stated that they will continue to put their efforts into long-term value creation, growth and preservation in a video posted shortly after Adani Enterprises shares were sold.