Rout of Adani stocks continues. Over US $100 billion lost by Adani companies. Share offer cancelled a day after being ‘fully subscribed’. Indian Parliament suspended amid uproar. International bankers deprecate Adani stocks. Regulators finally pay heed to Hindenburg allegations.
Late on the evening of 1 February, Adani Enterprises Limited announced that it had called off a US $2.5-billion share offering that concluded the day before. This followed triumphant announcements saying that the offer had been over-subscribed! Adani said that investors in the offering, technically called a Follow-on Public Offering (FPO), will be refunded.
The announcement did nothing to stem the rout on India’s stock market, with Adani Enterprises continuing its nosedive. The company, Adani’s flagship, has lost more than half of its value in a week. (A single day’s trading this week saw it lose over 28%.)
In a statement to the stock exchanges, the company said ‘given the unprecedented situation and the current market volatility the company aims to protect the interest of its investing community by returning the FPO proceeds and withdraws the completed transaction.’ Gautam Adani said ‘the Company’s board felt that going ahead with the issue will not be morally correct.’
The term ‘volatility’ had become a euphemism for meltdown.
The decision was simply the latest ramification of the explosive revelations contained in the Hindenburg report, released a week before. On 1 February, all 10 of the group’s listed firms ended the trading session in the red. The bloodbath continued on Thursday 2 February, as eight of the ten stocks fell further.
Cumulatively, Adani firms have now seen $US 108 billion wiped out in value since the release of the Hindenburg report, according to Bloomberg. Gautam Adani’s personal net worth has fallen by US $60 billion in a week according to Forbes.
Even NDTV, the news station taken over by Adani in the past month, described the Group's situation on the stock market as 'a nosedive'.
The pressure on the conglomerate is likely to increase further as regulators and financial institutions scrutinise the group’s operations.
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On Wednesday morning, Swiss investment bank Credit Suisse announced that it will no longer accept Adani-issued bonds as collateral for loans. An Indian credit rating agency ICRA, which is a unit of Moody’s Investors Service, stated that it is monitoring the impact of recent developments on its rated portfolio in the Adani Group, raising the spectre of deteriorating credit ratings for a group which is notoriously debt-dependent. On 2 February, the USA-based Citigroup followed Credit Suisse in stopping loans against Adani Group securities.
On the regulatory side, India’s capital markets regulator SEBI (Securities and Exchange Board of India) is examining the rout in Adani shares and is also looking into several of Hindenburg’s allegations, reported Reuters. The report added that SEBI is examining potential irregularities in the FPO by Adani Enterprises. The Indian government has sought a report from SEBI, as per another Reuters report. The Australian Securities and Investments Commission is also reviewing Hindenburg’s allegations.
India’s central bank, the Reserve Bank of India (RBI), then got into the act. On 2 February, the press reported that the RBI is looking into details of Indian banks’ exposure to Adani companies and has asked the banks to provide it with information on the present status of their loans to the Group.
Meanwhile, a report by Forbes said that there may be evidence that companies linked to the Adani Group bought into its own FPO. It noted that two firms disclosed by Adani Enterprises to have underwritten the FPO – Elara Capital (India) Private Limited and Monarch Networth Capital – are alleged to be linked to the group.
The cancellation of the FPO raises questions about who invested in it. If it hadn’t been cancelled, SEBI would have been obliged to release the full list of participating investors. Whether this will now take place is not clear.
The FPO, which ran from 27-31 January, initially saw tepid interest from investors. On Monday, its penultimate day, bids had been received for only 3% of the shares on offer. It was only in the final hours of its last day that sufficient bids were received. A report by the Economic Times detailed frantic last-minute efforts by Adani Group officials, including Gautam Adani himself, that led to large commitments by a clutch of Indian billionaires to push the FPO over the line in its final hours.
The report said that calls by Gautam Adani and the group’s CFO, Jugeshinder Singh, to Abu Dhabi firm International Holding Company executives, including chairman Sheikh Tahnoon bin Zayed al-Nahyan and chief executive Syed Basar Shueb, secured a commitment to invest $400 million into the offer on Monday evening. On Tuesday, participation was secured from ‘a Delhi-based industrialist, three Gujarati pharma billionaires and a Mumbai-based steel tycoon,’ the report said. Other egregiously wealthy individuals were tapped to participate and asked to commit investments of between Rs 100-200 crore (US $12-24 million), with ‘a leading NBFC [Non-Banking Financial Company], which was also a manager to the issue, even offering loans against shares to them,’ the report added.
On Thursday 2 February, the Indian opposition presented a united front, seeking to corner the government on the Adani issue in and out of Parliament. Just after 2 pm, both houses of Parliament were adjourned amid uproar. Opposition parties alleged that the government was seeking to gag the Parliament. The leading opposition party, the Congress, demanded a probe by a Joint Parliamentary Committee. Scores of opposition members belonging to numerous political parties made comments calling for investigation of the Hindenburg allegations by Indian authorities.
Significantly, the mood in the Indian government and the ruling BJP and its ideological family of Hindu nationalist organisations led by the RSS, which is collectively known as the Sangh Parivar, appears to be shifting against the Adani Group. As AdaniWatch reported earlier this week, public calls have been made by senior BJP figures for the party to distance itself from Adani. AdaniWatch now understands that these sentiments have been discussed at the highest levels of leadership within the government and the party.