Shares of India’s Adani Enterprises (ADEL.NS) sank 15% on Friday as a scathing report by a U.S. short seller triggered a rout in the conglomerate’s listed firms, casting doubts on how investors will respond to the company’s record $2.45 billion secondary sale.
Seven listed companies of the Adani conglomerate – controlled by one of the world’s richest men Gautam Adani – have lost a combined $43.5 billion in market capitalisation since Wednesday, with U.S. bonds of Adani firms also falling after Hindenburg Research flagged concerns in a Jan. 24 report about debt levels and the use of tax havens.
Adani Group has dismissed the report as baseless and said it is considering whether to take legal action against the New York-based firm.
“There were heavy positions in Adani group (shares), the way they have risen in the last couple of years,” said Neeraj Dewan, director at Quantum Securities in New Delhi.
“This is a classic case of panic selling…,” he said, noting the concerns were also spreading to Indian banks with exposure to Adani group’s debt.
CLSA estimates that Indian banks were exposed to about 40% of the 2 trillion Indian rupees ($24.53 billion) of Adani group debt in the fiscal year to March 2022.
The stunning selloff has cast a shadow over Adani Enterprises’ secondary sale which began on Friday. The anchor portion of the sale saw participation from investors including the Abu Dhabi Investment Authority on Wednesday.
The firm has set a floor price of 3,112 rupees ($38.22) a share and a cap of 3,276 rupees. But by midday on Friday, the stock had slumped to 2,875 rupees – well below the lower end of the price offering.
As of 0700 GMT, investors, mostly retail, had bid for around 200,000 shares, compared with the 45.5 million on offer, according to BSE exchange data. Bidding for retail investors will close on Jan. 31.
In its report, Hindenburg said key listed Adani Group companies had “substantial debt”, putting the conglomerate on a “precarious financial footing”, and that “sky-high valuations” had pushed the share prices of seven listed Adani companies as much as 85% beyond actual value.
Billionaire U.S. investor Bill Ackman said on Thursday that he found the Hindenburg report “highly credible and extremely well researched.”
Hindenburg said it held short positions in Adani through its U.S.-traded bonds and non-Indian-traded derivative instruments, meaning it is betting that their price would fall.
Adani Group has repeatedly faced and dismissed concern about debt levels. It defended itself in a presentation titled “Myths of Short Seller” on Thursday, saying deleveraging by promoters – or key shareholders – was “in a high growth phase”.
Jefferies in a client note said Adani Group had shared details of debt and leverage levels, and that it does not “see material risk arising to the Indian banking sector”.
Adani Group’s consolidated gross debt stood at 1.9 trillion rupees ($23.34 billion), Jefferies said.
Adani has said its debt is at a manageable level and that no investor has raised any concern.
Adani Enterprises’ net profit for the period ended Sept. 30, 2022 doubled to 9 billion Indian rupees ($110.31 million) while its total income nearly tripled to 795 billion Indian rupees, according to its share sale prospectus.
The company’s total liabilities as of September 2022 stood at 869 billion rupees ($10.64 billion), the prospectus showed.
The Adani conglomerate has been diversifying its business interests and last year bought cement firms ACC (ACC.NS) and Ambuja Cements (ABUJ.NS) from Switzerland’s Holcim (HOLN.S) for $10.5 billion. ACC was down 15% on Friday, while Ambuja plunged up to 25%.