The Adani Group: How the Indian giant lost $90bn in market value in just a week
Gautam Adani’s business empire has suffered a $90bn loss in value over just one week, after a US short seller accused his conglomerate of fraud and stock market manipulation.
The latest drops in value in Mumbai have left the combined market capitalisation of Adani Group stocks down more than $91.7bn since short seller Hindenburg released its report, a decline of almost 40 per cent in overall value.
Hindenburg Research revealed its allegations following a two-year investigation into India’s second largest conglomerate, which has seemingly damaged investor confidence in one of the most world’s most powerful moguls and his wide range of companies.
Adani has vehemently denied the allegations, labelling them malicious and discredited.
Nevertheless, the bleeding has continued despite flagship firm Adani Enterprises raising $2.4bn yesterday in a share sale yesterday that was intended to broaden its investor base.
In another headwind for the troubled business giant, Credit Suisse has stopped accepting bonds tied to the group’s companies as collateral for margin loans, according to The Financial Times.
The Swiss lender has slapped a zero lending value for notes issued by three Adani companies: Adani Ports and Special Economic Zone, Adani Green Energy and Adani Electricity Mumbai.
This means customers who had borrowed money from Credit Suisse using the bonds as collateral would have to offer additional cash or other securities to back the loans – or face their securities being liquidated.
Adani Group has grown over the past three years to become one of India’s largest industrial groups across infrastructure and logistics, turning Gautam Adani into one of the world’s wealthiest men.
Timeline: Hindenburg, Adani and how we got here…
Q: Who are Adani and Hindenburg?
Prior to the crisis, Gautam Adani was Asia’s richest man – with a $220bn empire spanning ports, power generation, airports, mining, edible oils, renewable power, media and cement.
Hindenburg Research is a financial research firm which analyses equity, credit and derivatives. It was founded in 2017 by Nathan Anderson – and has a track-record of finding corporate wrongdoings and placing short bets against companies.
Q: So, what happened?
On January 24, Hindenburg released a report accusing Adani’s conglomerate of improper use of tax havens, while also flagging concerns about its debt levels.
It also disclosed that the firm holds short positions in Adani companies through U.S.-traded bonds and non-Indian-traded derivative instruments.
The Adani group has called the report baseless and termed the allegations “unsubstantiated speculations.”
Q: Is this the first time these issues have been raised?
No. India’s capital markets regulator, the Securities and Exchange Board of India, has investigated some of these issues over the past year following local media reports.
The regulator will continue this scrutiny and draw on any fresh information in the Hindenburg report, according to Reuters.
Q: What does Hindenburg say about financial controls at Adani Group?
The short-seller has argued that listed Adani companies have seen a number of changes in chief financial officers and that auditors used by the group are relatively unknown.
It said Adani Enterprises has had five chief financial officers over the course of eight years, citing this a “a key red flag indicating potential accounting issues”.
Q: How has Adani responded to this?
The group said that several of the CFOs that the Hindenburg report points to have remained within the group and moved on to new roles.
On the quality of audits, it argued that the audit committee of each of the listed companies is composed entirely of independent directors, and auditors are appointed on their recommendation.
Q: Any other issues?
Hindenburg’s report says key listed Adani companies have substantial debt and are over-leveraged.
It also states the group faces liquidity risks due to high short term liabilities, with five of the seven key listed companies having reported “current ratios” below one, indicating near-term liquidity pressure.
Adani responded by saying leverage ratios of its companies continue to be healthy and are in line with the industry benchmarks of the respective sectors, further adding that this information is publicly disclosed regularly.
Ira Dugal – Reuters