Adani's market loss swells to $70bn as its fight with short-seller escalates

Indian billionaire Gautam Adani addresses delegates during the Bengal Global Business Summit in Kolkata, India April 20, 2022. REUTERS

Adani group shares extended their sharp falls on Monday as the Indian conglomerate's rebuttal of a US short-seller's criticism failed to pacify investors, driving stock market losses for the companies to almost $70 billion over three days.

Flagship Adani Enterprises, which is facing a crucial test this week with a follow-on share offering, fell 2.5%, reversing its initial gains of as much as 10% and staying significantly below the offer price.

Adani, led by Asia's richest man Gautam Adani, has locked horns with Hindenburg Research and on Sunday hit back at the short-seller's report of last week that flagged concerns about its debt levels and the use of tax havens. Adani said it complies with all local laws and had made the necessary regulatory disclosures.

Adani Transmission, Adani Total Gas, Adani Green Energy, Adani Power, Adani Wilmar and Adani Ports and Special Economic Zone fell between 4.2% and 20% on Monday.

Adani Enterprises' $2.5 billion secondary share sale entered its second day amid weak investor sentiment. The stock was trading at 2,686 rupees, 13.6% below the 3,112 rupees lower end of the offer price band. The upper band is 3,276 rupees.

Initial data from stock exchanges on Monday showed Adani has now received bids for 687,840, or 1.5%, of the 45.5 million of shares on offer. The deal closes on Tuesday.

Foreign and domestic institutional investors, as well as mutual funds, have made no bids so far, according to the data.

"Retail participation is likely to have a shortfall with current market prices still trailing the offer price and sentiment taking a hit due to the Hindenburg controversy," said Hemang Jani, equity strategist at Motilal Oswal Financial Services.

"While there is a risk that the share sale does not go through, it will be crucial today to wait and see how institutional investors participate."

Adani Group told Reuters in a statement on Saturday that the sale remains on schedule at the planned issue price, even as sources said bankers of the country's largest secondary share sale were considering extending the timeline beyond Jan 31, or tweaking the price due to the fall in its share price.

Indian regulations say the share offering must receive minimum subscription of 90%, and if it does not the issuer must refund the entire amount. Maybank Securities and Abu Dhabi Investment Authority are among investors who bid for the anchor portion of the issue.

Maybank said in a statement "there is no financial impact" on it as the subscription to Adani's offer was fully funded by client funds.

State-run insurance behemoth Life Insurance Corporation (LIC) told Reuters on Monday it was reviewing the Adani group's response to Hindenburg's report and would hold talks with the management within days.

LIC took 5% of the anchor portion, worth around $734 million. It already holds a 4.23% stake in the flagship Adani firm, while its other exposures include a 9.14% stake in Adani Ports and 5.96% in Adani Total Gas.

"Since we are a large investor we have the right to ask relevant questions," LIC Managing Director Raj Kumar said.

DEBT, DE-LEVERAGING

Index provider MSCI has said it was seeking feedback from market participants on Adani and was monitoring the factors that "may impact the eligibility of those relevant securities" in MSCI indexes.

In its response on Sunday, Adani highlighted its relationships with local and international banks and touted its access to diverse funding sources and structures, listing US banks Citigroup and JPMorgan Chase & Co and European lenders such as BNP Paribas, Credit Suisse and Deutsche Bank.

Responding to Adani's rebuttal, Hindenburg said the "response largely confirmed our findings and ignored our key questions."

The stock market meltdown is a dramatic setback for 60-year-old Adani. The school-dropout's stunning rise came with over 1,500% gains in some of his group stocks over three years, making him the world's third richest man before he slipped to rank eighth on the Forbes list on Monday.

Hindenburg said that Adani companies had "substantial debt" and that shares in seven Adani listed companies have an 85% downside due to what it called "sky-high valuations".

Adani's response stated that over the past decade, its group companies have "consistently de-levered".