India's Adani Ponders Independent Review After Market Rout

Disclosures on Tuesday show that India’s Adani Group is pondering independent evaluation of issues raised in a scathing report by Hindenburg Research.

The report by Hindenburg, a New York-based investigative research entity and short seller, accused the Indian conglomerate of “The Largest Con in Corporate History’ and was highly critical of the Adani Group’s related party transactions, legal compliance and internal controls.

The damage to Adani has been substantial, with its seven listed companies losing more than half of their previous market capitalisation of $220 billion.

The group, led by billionaire Gautam Adani, has been roiled by two weeks of market turmoil since Hindenburg alleged on January 24 that it had engaged in stock manipulation and used opaque foreign tax havens. It also said the group had a “precarious” and unsustainable level of debt.

Adani Group has denied the allegations, saying it complies with all laws and has made necessary disclosures over time. Nonetheless, investors dumped its shares as concerns of financial contagion grew.

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Earnings disclosures

The quarterly earnings disclosures on Tuesday of three Adani units – Adani Green Energy, Adani Ports and Special Economic Zone and Ambuja Cements – noted that a short seller had alleged “certain issues against some” Adani group entities, saying for the first time they may be looked into.

“The management of Adani group entities are evaluating an independent assessment, basis the requisite corporate approvals, to look into the issues and compliance of applicable laws and regulations, transaction specific issues,” Adani Green said in its quarterly earnings filing, without describing the issues.

While Ambuja’s filing was similar, Adani Ports said it would evaluate an independent assessment on the matter, if required.

The disclosure comes as shares of flagship Adani Enterprises rallied on Tuesday, a day after it prepaid some loans, bringing relief to investors that have seen $113.6 billion wiped off the conglomerate’s market value since the Hindenburg Research report three weeks ago.

Shares of Adani Enterprises were up again on Wednesday, by a further 12% at 1pm local time.

The crisis is one of the biggest reputational challenges for 60-year-old Adani, whose fortunes surged in recent years along with his stock prices, before the Hindenburg jolt. In a major setback for the billionaire, the market rout also forced him to shelve a key $2.5 billion share sale last week.

Ability to raise capital hit

Moody’s rating agency has warned the share-price plunge could hit the group’s ability to raise capital, while India’s central bank has started checking on lenders’ exposure to it.

On Monday, Adani Group said it would pre-pay $1.11 billion of loans on shares. Separately, JPMorgan on Tuesday said the group companies were still eligible for inclusion in the bank’s bond indexes.

The group’s flagship company Adani Enterprises closed up by close to 15% on Tuesday, still around half the level seen before the Hindenburg report was released.

Adani Enterprises’ recovery from its lows has attracted a lot of traders to the stock, said Ambareesh Baliga, a Mumbai-based independent market analyst.

“Monday’s announcement of them able to close over $1 billion loans also worked in their favor. Fundamentally speaking, looking at the issues which are there, the stock is still quite expensive,” he said.

The cumulative losses of Adani group’s seven listed companies still stand at $109 billion despite Adani Ports also gaining 1.4% on Tuesday and Adani Wilmar adding 5%.

Adani Green, Adani Total Gas Ltd and Adani Power, all however ended 5% lower.

Protest over state backing

After hundreds of members of India’s main opposition Congress party took to the streets on Monday pressing for a probe into Hindenburg’s allegations, dozens of activists from its youth wing gathered outside the Life Insurance Corporation’s office in New Delhi on Tuesday, carrying posters questioning why investigating agencies have remained silent.

Many Adani group companies report results this week. Adani Ports posted a lower quarterly profit on Tuesday as foreign exchange losses soared, and said it would pay back 50 billion rupees ($605 million) – or 13% of its net debt – in the new fiscal year from April.

Adani Green reported a more than two-fold jump in quarterly profit.

Spokespeople for Adani say its core fundamentals are unchanged, but analysts are watching to see if there is a formal regulatory inquiry into the group’s corporate oversight.

Some analysts said on Tuesday that Adani may need to sell some assets to reduce debt, or defer its spending plans because the group’s credibility has taken a hit and it is likely to be more expensive to raise fresh loans, especially from foreign lenders.

Meanwhile, global funds that specialize in high-yield and distressed-debt situations have bought large amounts of foreign currency bonds of Adani Group firms in the days following the Hindenburg report, according to India’s Economic Times.