Adani row rocks India's parliament amid financial contagion fears
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[February 03, 2023] By
Tanvi Mehta, Shivam Patel and Aditya Kalra
NEW DELHI (Reuters) -Both houses of India's parliament were adjourned on
Friday amid chaotic scenes as some lawmakers demanded an inquiry
following the meltdown of shares in billionaire Gautam Adani's group
companies, which some fear could spark wider financial turmoil.
Shares in Adani companies recovered after sharp falls earlier in the
day, but the seven listed firms have still lost about half their market
value - or more than $100 billion combined - since U.S. short-seller
Hindenburg Research last week accused the group of stock manipulation
and unsustainable debt.
Adani Group, one of India's top conglomerates, has rejected the
criticism and denied wrongdoing in detailed rebuttals, but that has
failed to arrest the unabated fall in its shares.
For Adani, a former school drop-out from Gujarat, the western home state
of Indian Prime Minister Narendra Modi, the crisis presents the biggest
reputational and business challenge of his life, as his firm struggles
to assuage investor concerns.
Credit ratings agency Moody's warned on Friday the share plunge could
hit the group's ability to raise capital, although peer Fitch saw no
immediate impact on its ratings.
"These adverse developments are likely to reduce the group’s ability to
raise capital to fund committed capex or refinance maturing debt over
the next 1-2 years. We recognise that a portion of the capex is
deferrable," Moody's said.
Amid fears the turmoil could spill over into the broader financial
system, some Indian politicians have called for a wider investigation
into the matter, and sources have told Reuters the central bank has
asked lenders for details of exposure to the group.
The speakers of both houses of parliament adjourned proceedings on
Friday as some lawmakers disrupted business by shouting slogans such as:
"We want a joint parliamentary committee (to investigate)" and "Stop
looting the poor!"
On Thursday, S&P Dow Jones Indices said it would drop the conglomerate's
flagship Adani Enterprises from widely used sustainability indexes on
Feb. 7, which would blunt their appeal for environment-conscious
investors.
"Contagion concerns are widening, but still limited to the banking
sector," said Charu Chanana, a market strategist with Saxo Markets in
Singapore.
"One of the big risk factors to watch for now is if more indices remove
Adani stocks ... This can result in foreign outflows as funds sell Adani
stocks, further aggravating confidence issues," Chanana said.
Adani Enterprises shares closed 1.4% higher, after earlier slumping 35%
to hit their lowest since March 2021 during trade. That low took its
losses to nearly $33.6 billion since last week, for a decline of 70%.
Adani Ports and Special Economic Zone Ltd was up 8%, while Adani
Transmission Ltd and Adani Green Energy Ltd were both down 10%.
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Traffic moves past the logo of the Adani
Group installed at a roundabout on the ring road in Ahmedabad,
India, Feb. 2, 2023. REUTERS/Amit Dave
Adani Total Gas Ltd , a joint venture with France's TotalEnergies
SE, fell 5%. In a statement, TotalEnergies said it had limited
exposure to stakes in Adani companies and had not re-evaluated them.
India's divestment secretary Tuhin Kanta Pandey told Reuters that
shareholders and customers of state-run Life Insurance Corp (LIC)
should not be concerned about its exposure to Adani group. LIC holds
a 4.23% stake in the flagship Adani firm, while its other exposures
include a 9.14% stake in Adani Ports and 5.96% in Adani Total Gas.
BIGGEST CHALLENGE
Adani, 60, has in recent years forged partnerships with, and
attracted investment from, foreign giants as he pursued global
expansion in industries from ports to power.
The market and financial crisis means foreign investors, many
already underweight on India as they consider its stock market
overpriced, are reducing exposure.
Asked about recent stock market weakness, India's finance minister
Nirmala Sitharaman told Network18 that "one instance, however much
talked about globally it may be, I would think is not going to be
indicative of how well Indian financial markets are governed."
In its report, Hindenburg said key listed Adani companies had
"substantial debt" and shares in the seven listed firms had a
downside of 85% due to what it called sky-high valuations. It also
alleged stock manipulation.
The Adani group said the allegation of stock manipulation had "no
basis" and stemmed from ignorance of Indian law. It added that over
the past decade, group companies have "consistently de-levered".
The listed Adani firms now have a combined market value of $107.5
billion, versus $218 billion before Hindenburg's report.
The plunge has forced Adani to cede the crown of Asia's richest
person to Indian rival Mukesh Ambani of Reliance Industries Ltd, as
he has slid to 17th in Forbes' ranking of the world's wealthiest
people. He had been third, after Elon Musk and Bernard Arnault.
The prices of U.S. dollar bonds issued by group members edged higher
on Friday after diving the previous day.
Adani Green's bonds maturing in September 2024 gained about 7 cents
to 69.69 cents, off Thursday's record low of 60.56 cents.
(Reporting by Aditya Kalra, Chris Thomas, Ankur Banerjee, Bansari
Mayur Kamdar, Shivam Patel, Tanvi Mehta and Rae Wee in Singapore;
Editing by Clarence Fernandez and Mark Potter)
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