Adani spotlight shifts to regulatory probes, response to allegations
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[February 01, 2023] By
Kane Wu and Davide Barbuscia
HONG KONG/NEW YORK (Reuters) - India's Adani Group may have passed a key
test by raising $2.5 billion in the face of a short-seller attack, but
its response to the allegations and the outcome of regulatory probes
will shape its prospects, analysts and investors say.
Most of the conglomerate's shares dropped on Wednesday, extending losses
to $84 billion after Hindenburg Research's report last week alleged
improper use of offshore tax havens and flagged concerns about high
debt.
The port-to-property group, led by Gautam Adani, one of the world's
richest people, has denied the allegations and called them baseless,
adding it has always made the necessary regulatory disclosures.
Adani's latest fundraising was critical, not just because it will help
cut the group's 2.2 trillion rupees ($27 billion) of debt, but also
because it was viewed as a test of investor faith amid business and
reputational challenges.
The completion of the secondary share offering to raise $2.5 billion,
India's largest such deal, alleviates some of the pressure on Adani's
credibility, said Ken Shih, Hong Kong-based head of wealth management at
Saxo Markets.
"But from an offshore investor's perspective the allegations (made by
Hindenburg) ... do not seem to be clearly addressed," he said.
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"There may be even more organised short sell attacks ... given they were
unable to clearly squash all remaining concerns and allegations yet.
Until that happens there is blood in the water now and other short
sellers might come circling."
Adani has said Hindenburg's report was a "calculated attack" on India
and its institutions. The U.S. short-seller has said Adani's "response
largely confirmed our findings and ignored our key questions."
While Adani's share sale was slightly over-subscribed as bids poured in
on the last day from foreign institutional and corporate investors,
Indian financial firms stayed away and the response was muted from
individual buyers.
The identity of the institutions that placed orders on the last day has
not been revealed, but the 30% anchor portion of the sale attracted
investors including Maybank Securities and Abu Dhabi Investment
Authority.
Adani did not immediately respond to a Reuters request for comment for
this story.
SERVICING DEBT
Soon after Hindenburg's report was made public, the Securities and
Exchange Board of India (SEBI) decided to study it, adding to the
regulator's own ongoing preliminary investigation into the group's
foreign portfolio investors, Reuters reported on Monday, citing sources.
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![](../images/020123PIX/busine30.jpg)
Indian billionaire Gautam Adani speaks
during an inauguration ceremony after the Adani Group completed the
purchase of Haifa Port earlier in January 2023, in Haifa port,
Israel January 31, 2023. REUTERS/Amir Cohen/File Photo
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Australia's corporate regulator said on Wednesday it would review
the Hindenburg report as concerns raised also relate to Adani's
Australian operations.
State-run Life Insurance Corporation, India's largest insurer, is
also reviewing Adani's response to the scathing criticism and will
hold talks with the group's management within days to seek
clarifications.
A U.S.-based investor in dollar bonds issued by Adani's ports and
power units said while it would pay "attention" to the information
in the next few weeks, the fund would explore adding to holdings if
others sell in the event of ratings downgrade.
"We would get worried if for some reason they couldn't borrow more
money or if their cash flow becomes insufficient to cover debt
service. And those two things aren't happening," said the investor,
who spoke on condition of anonymity.
However, underscoring the nervousness in some quarters, Bloomberg
reported on Wednesday that Credit Suisse had stopped accepting bonds
of Adani group companies as collateral for margin loans to its
private banking clients.
Credit Suisse had no immediate comment.
"The question about what next for the allegations partly depends on
whether SEBI or others take up the investigation," said Quiddity
Advisors analyst Travis Lundy, who writes on investment research
network Smartkarma.
Adani Enterprises lost nearly 6% on Wednesday to bring its losses
since the Hindenburg report to more than $8 billion. The current
market price of 2,803 rupees is also below the indicative price band
for the offering.
"To do another offering, they will need to prove that the last one
was a success - either by stock price or by business growth - and
they have a grand plan," Lundy said.
(Reporting by Kane Wu in Hong Kong and Davide Barbuscia in New York;
Additional reporting by Anshuman Daga in Singapore; Writing by
Sumeet Chatterjee; Editing by Mark Potter)
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