The fire continues to decimate the market value of the conglomerate built by the Indian tycoon Gautam Adani.
For two weeks now, this fire, ignited by a scathing report from Hindenburg Research on Jan. 24, has spread at lightning speed. The famous short-seller accused Adani Group of fraud, money laundering, stock market manipulation and poor governance.
The conglomerate, which holds mines, ports, power plants and data centers, is one of the jewels of India. Its rise coincided with the the country's ambitions to become an economic powerhouse rivaling China.
Adani Group has rejected Hindenburg's accusations, which shorted stocks of the Adani conglomerate through U.S.-traded bonds and non-Indian-traded derivative instruments. This means that the New York-based investment firm, a well-known short-seller, is betting on a short-term drop in the prices of these equities.
Selloff of Adani Group Equities Continues
But investors do not seem convinced by the explanations provided so far. The Mumbai Stock Exchange rout of the entities making up the Adani empire continues.
Adani Enterprises, the conglomerate's flagship, lost 0.4% on Feb.6. Adani Transmission fell 10%, while Adani Green Energy lost 5%. Adani Power and Adani Total Gas each declined 5%. Adani Port and Special Economic Zone bucked the trend and ended 9.46% higher.
In all, Adani entities have lost more than $118 billion in market value since Hindenburg published its report. This represents more than half the group's market capitalization.
The latest concern about the Adani empire focuses on its access to funding after Adani Enterprises, the conglomerate's flagship, canceled a $2.5 billion stock sale last week.
"There is a risk that investor concerns about the group’s governance and disclosures are larger than we have currently factored into our ratings,” S&P Global Ratings analysts Mary Anne Low and Chang Jia wrote in a note. "Or that new investigations and negative market sentiment may lead to increased cost of capital and reduce funding access for rated entities.”
Moody's Investors Service is also questioning Adani's ability to raise funds and refinance its debt in the coming years.
Adani Group’s total gross debt reached 2.2 trillion Indian rupees ($26.8 billion) as of the end of March 2022, according to its response to Hindenburg.
Awaiting Earnings
The setback to the conglomerate could reverberate within the entire Indian economy.
Adani Group's stock-market rout has cost India its place among the world’s five biggest stock markets, while the rupee is the worst-performing emerging Asian currency this year, according to Bloomberg News.
Foreigners have pulled out $3.8 billion from the nation’s equities in 2023, the most among emerging Asian markets, excluding China.
"There will be more volatility in India this year; hence the market is prone to a correction,” Bernstein analyst Venugopal Garre wrote in a note dated Feb.6. "The best way to pick up such transactions is to look for arbitrages in implied growth.”
At the same time Goldman Sachs analysts estimate that the effect of the Adani Group's slump on the Indian economy will be limited.
"We believe credit concerns are likely to be idiosyncratic in nature and are less likely to have broader contagion or systemic issues for the India offshore credit market,” analysts Kenneth Ho and Chakki Ting wrote on Feb.3.
The next big test for Adani Group comes this week. Investors want to hear what the various entities of the conglomerate that publish their earnings will say about the ongoing situation.
Adani Transmission Ltd. was set to report its earnings on Feb. 6. Adani Ports and Special Economic Zone Ltd. and Adani Green Energy Ltd. will publish their earnings later in the week.
These results should give investors elements to gauge the conglomerate's financial health.
