India's Adani mulls independent review after short-seller's criticism

[February 07, 2023]  By Sethuraman N R and Aditya Kalra

BENGALURU (Reuters) -India's Adani Group is considering independent evaluation of issues relating to legal compliance, related party transactions and internal controls following a U.S. short-seller's critical report on its businesses, disclosures showed on Tuesday.

The group, led by billionaire Gautam Adani, has been roiled by days of market turmoil after Hindenburg Research on Jan. 24 alleged it had engaged in stock manipulation and used tax havens. It also said the group had unsustainable 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.

The quarterly earnings disclosures 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 Adani Group 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 two weeks ago.

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.

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.

The logo of the Adani Group is seen on the facade of one of its buildings on the outskirts of Ahmedabad, India, April 13, 2021. REUTERS/Amit Dave

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 Ltd closed up 14.6% 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.

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.

(Reporting by Nallur Sethuraman in Bengaluru; Editing by Muralikumar Anantharaman, Kirsten Donovan and Bernadette Baum)

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