Ten days after Hindenburg Research released its scathing report accusing the Adani Group of stock manipulation and accounting fraud, a lot has changed for the ports-to-power conglomerate. Since January 24, Adani Group companies have lost around Rs 9 lakh crore m-cap in the last seven trading sessions till February 3. The total market capitalisation of the Adani Group slipped to Rs 10 lakh crore on February 3 from Rs 19.2 lakh crore as of January 24, the day Hindenburg Research made its report public.
Here are 10 top updates so far:
1. How it all started
New-York based short-seller Hindenburg Research published its report on the Adani Group of companies on January 24 accusing the group of engaging in stock manipulation and accounting fraud over decades.
Short selling or shorting is a stock market trading strategy, wherein stock prices are speculated. Market regulator SEBI defines the process as the sale of a security or share that the seller does not own. In short selling, an investor sells borrowed shares in the market in the hope of buying them back at a cheaper price.
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2. Report highlights
The US-based research firm, which is headed by Nathan Anderson, said that the key-listed Adani Group companies had “substantial debt”, which has put the entire group on a precarious financial footing.
“Key listed Adani companies have also taken on substantial debt, including pledging shares of their inflated stock for loans, putting the entire group on precarious financial footing. 5 of 7 key listed companies have reported ‘current ratios’ below 1, indicating near-term liquidity pressure,” the report said.
The group said it has short positions in Adani Group companies through US-traded bonds and non-Indian-traded derivative instruments.
3. What did the Adani Group say
Defending its position, the Adani Group, in its 413-page response, said that the report was not merely an unwarranted attack on any specific company but a calculated attack on India, and its growth story.
“It is tremendously concerning that the statements of an entity sitting thousands of miles away, with no credibility or ethics has caused serious and unprecedented adverse impact on our investors,” the Adani Group said.
4. Hindenburg’s terse reply
In its rebuttal, the US-based short seller said the Adani Group did not address any of the substantive points that the report raised. Rather, Adani has “stoked a nationalist narrative” that seeks to conflate the “meteoric rise and the wealth of its chairman, Gautam Adani, with the success of India itself”.
It added that if Adani Group files a lawsuit in the US against the short seller, it will demand documents in the legal discovery process.
“If Adani is serious, it should also file suit in the US where we operate. We have a long list of documents we would demand in a legal discovery process,” said Hindenburg in its statement published on Twitter.
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5. Calling off FPO
The Hindenburg report came at a time when the group had decided to float a Rs 20,000 crore (USD 2.5 billion) follow-on public offer (FPO) by its flagship firm Adani Enterprises.
Despite the report, the company went ahead with the FPO launch. The FPO sailed through the initial hiccups and was fully subscribed on January 31. The company claimed that the FPO saw 112 per cent subscriptions mainly due to HNI investors on the final bidding day.
But within a day, the company declared it has cancelled its Follow-On Public Offering (FPO) and will return money to its investors.
In an exchange filing, Adani Enterprises said: “The Board of Directors of the Company at its meeting held today i.e. February 1, 2023, has decided, in the interest of its subscribers, not to proceed with the further public offer (FPO) of equity shares aggregating up to Rs 20,000 crore of face value Rs 1 each on partly paid-up basis, which was fully subscribed.”
Gautam Adani, Chairman, Adani Enterprises, said that the decision was taken amid the fluctuations the group’s stocks saw during the day’s trading.
“The Board takes this opportunity to thank all the investors for your support and commitment to our FPO. The subscription for the FPO closed successfully yesterday. Despite the volatility in the stock over the last week, your faith and belief in the Company, its business, and its management has been extremely reassuring and humbling. Thank you,” Adani said in a press statement.
6. Market rout
The report led to a major rout of Adani Group stocks. Till February 3, Adani Group companies lost a total of Rs 9 lakh crore m-cap in the seven trading sessions on bourses. The total market capitalisation of the group touched Rs 10 lakh crore on February 3 from Rs 19.2 lakh crore as of January 24, the day Hindenburg Research made its report public.
Adani Power, Adani Total Gas, Adani Wilmar, Adani Green, Adani Transmission, Adani Ports, Adani Enterprises, Ambuja Cements, ACC, and NDTV are the ten listed Adani Group stocks and the shares have crashed up to 50 per cent since last Wednesday. Shares of Adani Enterprises crashed 35 per cent in early trade on Friday after S&P Dow Jones Indices said it would exclude Adani Enterprises from widely used sustainability indices with effect from February 7. However, the stock ended 1 per cent higher on Sensex.
Among other group stocks, Adani Total Gas fell the most to 51 per cent to Rs 1901.65 from Rs 3,885.45 during the same period, followed by Adani Green Energy, down 40 per cent, Adani Enterprises, down 38 per cent, Adani Transmission, down 37 per cent, Adani Ports and SEZ, down 35 per cent, Ambuja Cements, down 33 per cent, Adani Wilmar, down 23 per cent, Adani Power, down 22.5 per cent, ACC, down 21 per cent, and lastly NDTV, down 17 per cent.
7. Under watch
Amid the market rout, the Reserve Bank of India (RBI) asks banks to furnish details about their exposure to the Adani Group. State Bank of India (SBI), the largest bank by assets, said its overall exposure to the Adani Group is at 0.88 per cent of the book or around Rs 27,000 crore.
Punjab National Bank (PNB) said its total exposure to the Adani Group of Rs 7,000 crore.
Bank of Baroda said it has an exposure of Rs 4,000 crore. Other banks have not yet disclosed their exposure.
8. LIC’s exposure
LIC in its statement said that it’s total holding under equity and debt is Rs 35,917.31 crore as on December 31, 2022, under the Adani group of companies.
The total purchase value of equity, purchased over the last many years, under all the Adani group companies is Rs 30,127 crore, and the market value for the same as at close of market hours on January 27, 2023, was Rs 56,142 crore, it added.
“The total amount invested under Adani Group amounts to Rs 36,474.78 crore as on date. These investments have however been made over a period. Further, it may be appreciated that the credit rating of all of the Adani debt securities held by LIC are AA and above which is in compliance with the IRDAI investment regulations as applicable to all the life insurance companies,” said LIC.
9. Company ratings
On Friday, S&P Global Ratings on Friday revised the outlook on Adani Ports and Adani Electricity to negative from stable while affirming the rating.
“There is a risk that investor concerns about the group’s governance and disclosures are larger than we have currently factored into our ratings, or that new investigations and negative market sentiment may lead to increased cost of capital and reduce funding access for rated entities,” S&P said in a statement.
On Thursday, National Stock Exchange (NSE) placed as many as three Adani group companies, including Adani Enterprises, Adani Ports and Special Economic Zone, and Ambuja Cements, under a short-term additional surveillance measure (ASM) framework, effective from 3 February 2023.
10. Govt’s response
Union Finance Minister Nirmala Sitharaman on Friday affirmed that LIC and SBI were not “over-exposed” to Adani Group shares and that “investors’ confidence” would endure in the market. She told a news channel that India remained “an absolutely well governed” country and a “very well regulated financial market”.
“One instance, however much talked about globally, I would think is not going to be indicative of how well Indian financial markets have been governed,” Sitharaman said.
The Reserve Bank of India on Friday too said that as per its current assessment, India’s “banking sector remains resilient and stable”.
