The selloff in Gautam Adani’s corporate empire accelerated on Friday, erasing almost $45 billion of market value in less than two sessions as Asia’s richest man struggles to contain the fallout from a scathing report by US short seller Hindenburg Research.
(Bloomberg) — The selloff in Gautam Adani’s corporate empire accelerated on Friday, erasing almost $45 billion of market value in less than two sessions as Asia’s richest man struggles to contain the fallout from a scathing report by US short seller Hindenburg Research.
The rout is piling pressure on the Indian tycoon as it erodes his net worth and threatens to sour investor sentiment toward the $2.5 billion share sale by his flagship firm Adani Enterprises Ltd. Losses accelerated even after the Adani Group disputed Hindenburg’s allegations in a Thursday call with bondholders and pledged to release a detailed rebuttal on Friday.
Adani Enterprises lost as much as 9.7% on Friday, slipping below the 3,276 rupees level at which anchor investors were allotted shares in the follow-on equity sale. Adani Green Energy Ltd. and Adani Total Gas both tumbled 20%, adding to a $12 billion selloff in group companies on Wednesday. Indian markets were shut Thursday.
The slump in Adani shares follows breathtaking gains in recent years, including some of Asia’s biggest returns in 2022. The five-year advance in Adani Enterprises trumped even the likes of Elon Musk’s Tesla Inc., vaulting Adani from relative obscurity into the ranks of the world’s richest people.
Concerns about the group’s finances have percolated throughout the tycoon’s rise, with CreditSights saying in August that Adani’s conglomerate is “deeply overleveraged” with “stretched balance sheets.” But the Hindenburg report has put an unprecedented spotlight on the group’s corporate governance — as well as that of India as a whole.
“The issues strike at the heart of the Indian corporate sector scene where a number of family-controlled conglomerates dominate,” said Gary Dugan, chief executive officer of the Global CIO Office. “By their very nature they are opaque, and global investors have to take on trust the issues of corporate governance.”
“After last year’s stellar performance, Indian equities and any high-profile company’s shares are open to downside risk of profit-taking,” Dugan added. “Hence, the broader Indian equity market could be at risk of further downside, with Adani the catalyst.”
India’s benchmark S&P BSE Sensex Index lost more than 1% on Friday, the worst performance in Asia.
Hindenburg issued a report on Jan. 24 detailing wide-ranging allegations of corporate malpractice following a two-year investigation into the tycoon’s companies. Adani Group has said it’s exploring legal action after a “maliciously mischievous, unresearched” report by the short seller. Hindenburg has said it fully stands by its report, adding that any legal action taken against it would be meritless, according to a statement on Twitter.
Companies linked to Adani Group plan a detailed response Friday to the report that they labeled as “bogus,” according to bondholders who joined a conference call with Adani executives. On the call, investors were told that the US-based short seller’s assertions of accounting fraud were “devoid of facts.”
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“It seems like there might be more downside and this report can become a big legal issue as it is causing reputational damage too,” said Sameer Kalra, founder of Target Investing in Mumbai.
Hindenburg Research released its report just as Adani Enterprises was seeking to attract a broader network of local and global investors for its share sale. The transaction, India’s biggest ever primary follow-on public offering, had already lured a number of anchor investors before the Hindenburg report emerged, though retail investors and high net worth individuals can bid for shares starting today through Jan. 31.
The offering was off to a tepid start, with the portions reserved for retail investors and the company’s employees each getting bids for 1% of the shares on sale as of 11:30 a.m. in Mumbai. The institutional investor portion had yet to see any bids, stock exchange data showed.
That said, investors in Indian public offerings typically wait until the last day of the sale to place bids.
“Timing is everything for traders in the market, and the current situation with Adani’s FPO launch and the negative report has helped traders capitalize on the situation,” said Deven Choksey, managing director at KRChoksey Holdings in Mumbai.
–With assistance from Devidutta Tripathy and Filipe Pacheco.
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