$90 Billion Collapse of Billionaire Adani's Empire
By Luc Olinga,2023-02-01
The Indian tycoon's conglomerate is being routed on the stock market, and where it ends is unclear.
The break was short, very short.
Accusations of fraud, stock-market manipulation and illegal practices made by the New York short-seller Hindenburg Research against Adani Group, the conglomerate of Indian billionaire Gautam Adani, were prominent business headlines on Feb. 1 after a slight break the day before.
The stock-market rout of Adani Group has resumed after a pause on Jan. 31 during which Adani Enterprises, the flagship company of this empire, managed to end the trading session higher.
On the same day, Adani Enterprises successfully completed a $2.5 billion share sale aimed at attracting the general public and foreign investors. And signs of optimism appeared, even as only 10% of the shares had been bought by retail investors and employees of the company. Adani Enterprises was targeting these individual investors from the outset of the offering.
The stock-market difficulties of Adani Group, whose spectacular expansion coincided with the development ambitions of Indian Prime Minister Narendra Modi, do not spare any entity of the group.
Adani Enterprises closed today's trading session down 28%. Adani Port & Special Economic Zone lost about 20%, Adani Green Energy fell more than 5%, Adani Total Gas lost 10%, while Adani Transmission fell 3%.
'There May be a Debt Problem': Commentator
The losses the group has seen since Hindenburg published its report on Jan. 24 are enormous. In the five trading sessions following this report, the Adani empire lost more than $90 billion in market capitalization, Bloomberg News calculates.
"It's better to stay out of trouble than get out of trouble later," Smart Investor's David Kuo told CNBC. "What Hindenburg is alluding is that there is a problem with the debt. And it may not reflect itself in the share price, but there may be a debt problem."
"It does have a lot of bonds outside of India - what happens if those bonds were to deteriorate in value? It would have an impact on the company," Kuo continued.
"Whether you believe the Hindenburg report or not, I think something needs to happen. Something needs to be clarified before investors start jumping in."
Hindenburg Research on Jan. 24 said it had shorted stocks of the Adani conglomerate through U.S.-traded bonds and non-Indian-traded derivative instruments. This means that the New York-based investment firm, a well-known short-seller, is betting on a short-term drop in the prices of these equities.
The short-seller claims that the conglomerate has used shell companies in tax havens to boost its revenue and manipulate the stock prices of its various entities. The report describes a galaxy of shell entities based in the Caribbean, Mauritius and the United Arab Emirates controlled by the Adani family.
"We have uncovered evidence of brazen accounting fraud, stock manipulation and money laundering at Adani, taking place over the course of decades," Hindenburg wrote.
"Adani has pulled off this gargantuan feat with the help of enablers in government and a cottage industry of international companies that facilitate these activities."
Adani Group has rejected the allegations as baseless and has threatened to pursue all possible legal remedies in Indian courts. The conglomerate also went so far as to say that India was the target of Hindenburg.
"This is not merely an unwarranted attack on any specific company but a calculated attack on India, the independence, integrity and quality of Indian institutions, and the growth story and ambition of India," Adani Group said, in a 413-page report, on Jan. 29.
Adani Does a Deal in Israel
Adani Group is one of the most valuable companies in India. The firm holds mines, ports and power plants. It owns a dozen commercial ports and is present in coal, electricity and renewable energy. It also has diversified into airports, data centers and defense.
Adani Group, for example, owns India's biggest airport operator and the largest port operator in the country.
The conglomerate also recently entered the cement sector by buying assets of cement manufacturer Holcim in India and is also looking to set up an aluminum factory.
On Jan. 31 the founder tweeted a photo of himself shaking hands with Israeli Prime Minister Benjamin Netanyahu. According to Reuters, Adani Group had just finalized the takeover of the Port of Haifa in Israel for $1.15 billion.
"Privileged to meet with @IsraeliPM @netanyahu on this momentous day as the Port of Haifa is handed over to the Adani Group," the billionaire wrote. "The Abraham Accord will be a game changer for the Mediterranean sea logistics. Adani Gadot set to transform Haifa Port into a landmark for all to admire."
Gautam Adani has grown his empire by acquiring companies with debt.
Last August, the CreditSights subsidiary of Fitch Ratings warned that the Adani conglomerate was "deeply overleveraged" and may "in the worst-case scenario" spiral into a debt trap.
But two weeks later the credit-rating firm said it discovered that it had made "calculation errors" in two of Adani Group's companies. It corrected its report and removed the words "deeply overleveraged."
"CreditSights' views have not changed from its original report and we still maintain that the group's leverage is elevated," CreditSights concluded.
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