Is the empire of Indian billionaire Gautam Adani on fire?
Adani Group, one of India's most prominent conglomerates, whose rise coincided with Prime Minister Narendra Modi's development ambitions, has been facing allegations of fraud, price manipulation and illegal practices launched by the New York short-selling investment firm Hindenburg Research.
The accusations come as Adani, who had leaped into the global elite of billionaires in 2022, was planning to expand his influence overseas.
In September he had notably became the world's second richest man behind Elon Musk. His fortune had soared to $150 billion. The Indian tycoon had been one of the few billionaires to have seen his net worth increase in 2022, earning $44 billion, according to the Bloomberg Billionaires Index.
But in less than 10 days, his empire, which holds mines, ports, power plants and data centers in India, is undergoing a stock-market rout as spectacular as his rise. In the five sessions since Hindenburg's accusations were published, the entities that make up the Adani conglomerate lost a total of $90 billion in market capitalization.
Huge Losses in 24 Hours - and a Cancellation
On Feb. 1 Adani Enterprises, the flagship of this empire, closed with a 28% plunge on the Mumbai Stock Exchange. The day before, however, Adani Enterprises had successfully raised $2.5 billion. The transaction, which had been carried out as a follow-on public offering, had been successful under the circumstances.
But many observers had pointed out that Adani Enterprises had targeted the offering at retail investors and employees of the company, these investors subscribed for only 10% of the shares.
It was foreign institutional investors like Abu Dhabi Conglomerate International Holding that saved the company from a huge setback. IHC had indicated that it would invest $400 million and take 16% of the offering. IHC last year invested $2 billion in the Adani conglomerate.
As a result, the share sale was fully subscribed. Investors who bought Adani Enterprises shares did so in a price range between 3,112 rupees and 3,276 rupees.
But 24 hours later, Adani Enterprises shares closed at 2,135.35 rupees, 31.4% to 35% below the price offered in the follow-on offering. This means that all the investors who took part in the transaction had already suffered significant losses just a few hours after they invested.
Now, Adani Enterprises has announced that it is canceling the follow-on offering and has decided to return the funds to all the investors who participated.
"Today the market has been unprecedented, and our stock price has fluctuated over the course of the day," the company announced in a statement on Feb.1.
"Given these extraordinary circumstances, the company’s board felt that going ahead with the issue would not be morally correct. The interest of the investors is paramount and hence to insulate them from any potential financial losses, the Board has decided not to go ahead with the FPO."
"We are working with our book running lead managers (BRLMs) to refund the proceeds received by us in escrow and to also release the amounts blocked in your bank accounts for subscription to this issue."
'Our Balance Sheet Is Very Healthy'
Adani's about-face also came after Bloomberg News reported that Credit Suisse was no longer accepting bonds from companies that make up the Adani Group conglomerate as collateral for margin loans to its private banking clients.
These latest developments suggest that the crisis facing one of Asia's largest conglomerates is worsening. Aware of the grave concern among investors, Adani Enterprises wanted to reassure them about its financial situation.
"Our balance sheet is very healthy with strong cashflows and secure assets, and we have an impeccable track record of servicing our debt," the company said. "This decision will not have any impact on our existing operations and future plans."
"Once the market stabilizes, we will review our capital market strategy. We are very confident that we will continue to get your support. Thank you for your trust in us.”
The conglomerate faced accusations of fraud, price manipulation and illegal practices launched by Hindenburg Research.
The investment firm claims that the conglomerate has used shell companies in tax havens to boost its revenue and manipulate the stock prices of its various entities. The report, which was published on Jan. 24, describes a galaxy of shell entities based in the Caribbean, Mauritius and the United Arab Emirates controlled by the Adani family.
"We have uncovered evidence of brazen accounting fraud, stock manipulation and money laundering at Adani, taking place over the course of decades," Hindenburg wrote.
"Adani has pulled off this gargantuan feat with the help of enablers in government and a cottage industry of international companies that facilitate these activities."
As a result, Hindenburg Research said that it had 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.
Adani Group has rejected the allegations as baseless and has threatened to pursue all possible legal remedies in Indian courts. The conglomerate also went so far as to say that India was the target of Hindenburg.
"This is not merely an unwarranted attack on any specific company but a calculated attack on India, the independence, integrity and quality of Indian institutions, and the growth story and ambition of India," Adani Group said, in a 413-page report, on Jan. 29.
The showdown between the corporate group and the investment firm continues.
