Adani market snowballs to $100 billion on shelved share sale

NEW DELHI, Feb 2 (Reuters) – Indian shares in the Adani group fell on Thursday after market turmoil forced the conglomerate to scrap a crucial $2.5 billion share offering, extending market losses to more than $100 billion and raising concerns about the potential systemic impact.

The withdrawal of the Adani Enterprises ( ADEL.NS ) share sale marked a dramatic setback for Gautam Adani, the dropout-turned-billionaire whose fortunes rose rapidly in recent years but have plummeted due to a U.S.-based short seller̵[ads1]7;s critical research report released on 24 January.

The events are an embarrassing turn for the billionaire who has partnered with foreign players and marquee investors in a global expansion of businesses ranging from ports to mining to cement.

Adani suspended the share sale late on Wednesday as a share rout sparked by short-seller Hindenburg’s criticism intensified, despite the offer being fully subscribed on Tuesday. In the fallout from the attack, Adani also lost his title as Asia’s richest man.

The group’s flagship company – Adani Enterprises ( ADEL.NS ) – plunged 10% after opening higher on Thursday. Other group companies – Adani Ports and Special Economic Zone ( APSE.NS ), Adani Total Gas ( ADAG.NS ), Adani Green Energy ( ADNA.NS ) and Adani Transmission ( ADAI.NS ) – fell 10% each, while Adani Power ( ADAN.NS) and Adani Wilmar (ADAW.NS) each fell 5%.

Adani has fallen in the rankings of the world’s richest to 16th place, according to Forbes’ list, down from third place last week.

“Selling may intensify in the afternoon session, as we have seen before. Unless Adani is able to regain the confidence of institutional investors, shares will be in freefall,” said Avinash Gorakshakar, head of research at Mumbai-based Profitmart Securities.

Adani’s falling shares have raised concerns about the likelihood of a larger impact on India’s financial system.

India’s central bank has asked local banks for details of their exposure to the Adani group of companies, government and banking sources told Reuters on Thursday. CLSA estimates that Indian banks were exposed to around 40% of the 2 trillion rupees ($24.53 billion) of Adani group debt in the financial year to March 2022. read more

Citigroup’s ( CN ) wealth unit has stopped providing margin loans to its clients against Adani group securities and decided to cut the loan-to-value ratio for credit against Adani securities to zero on Thursday, a source said.

In New Delhi, opposition lawmakers filed notices in the Indian parliament demanding debate on the US short-seller’s report. Congress party lawmaker Manish Tewari said he will demand a joint parliamentary committee probe into the matter, Reuters partner ANI reported.

ADANI VS HINDENBURG

Hindenburg’s report last week alleged an inappropriate use of offshore tax havens and share manipulation by the Adani group. It also raised concerns about high debt and the valuation of seven listed Adani companies.

The Adani group has denied the allegations, saying the short-seller’s allegation of stock manipulation has “no basis” and stems from ignorance of Indian law. The group has always made the required regulatory disclosures, it added.

Earlier this week, the Adani group said it had the full support of investors, but investor confidence has waned in recent days.

As shares plunged after the Hindenburg report, Adani managed to secure the share sale subscriptions on Tuesday, even though the share price was below the IPO’s offer price. But on Wednesday the shares plunged again.

In a late-night announcement on Wednesday, Adani said it was withdrawing the share sale as the company’s “share price has fluctuated throughout the day. Given these extraordinary circumstances, the company’s board felt that it will not be ethical to proceed with the matter. Correct.”

Early on Thursday, Adani said in a video address that “the interest of my investors is paramount and everything is secondary. Therefore, to insulate the investors from potential losses, we have withdrawn” the share sale.

Reporting by Chris Thomas, Aditya Kalra and Nallur Sethuraman in Bengaluru; Editing by Muralikumar Anantharaman

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