Indian Adani begins record sell-off in shares as short seller triggers $44bn rout

MUMBAI, Jan 27 (Reuters) – Shares of Indian firm Adani Enterprises (ADEL.NS) fell 15% on Friday as a scathing report from a U.S. short seller sparked a rout at the conglomerate’s listed companies , casting doubts on how investors will react to the company’s record $2.45 billion secondary sale.

Seven listed companies in the Adani conglomerate – controlled by one of the world’s richest men, Gautam Adani – have lost a combined market capitalization of $43.5 billion since Wednesday, with US bonds of Adani companies also falling after Hindenburg Research flagged concerns in a January 24 report. on debt levels and the use of tax havens.

Adani Group dismissed the report as baseless and said it was considering legal action against the New York-based company.

«There were significant positions in the Adani Group (equities) as they increased over the past two years,» said Neeraj Dewan, director of Quantum Securities in New Delhi.

«This is a classic case of panic selling…» he said, noting that concerns were also spreading to Indian banks exposed to Adani Group debt.

The public bank index (.NIFTYPSU) fell 4.6%, while the main Nifty Bank index (.NSEBANK) fell 2.7%.

CLSA estimates that Indian banks were exposed to around 40% of the Adani Group’s 2 trillion Indian rupees ($24.53 billion) of debt in the fiscal year ending March 2022.

The eye-popping sale cast a shadow over Adani Enterprises’ secondary sale which kicked off on Friday. The key part of the sale saw the participation of investors including the Abu Dhabi Investment Authority on Wednesday.

The company has set a floor price of 3,112 rupees ($38.22) per share and a cap of 3,276 rupees. But by midday on Friday, the stock had fallen to 2,875 rupees – well below the lower limit of the price offer.

As of 0700 GMT, investors, mostly retail investors, had bid about 200,000 shares, down from 45.5 million shares, according to data from the BSE exchange. Auctions for retail investors will close on January 31.

Shares of other Adani-listed companies also fell, with Adani Transmission Ltd (ADAI.NS), Adani Total Gas (ADAG.NS), Adani Green Energy (ADNA.NS) and Adani Ports (APSE.NS) falling 20% each.

In his report, Hindenburg said the main listed companies of the Adani Group had «substantial debt», putting the conglomerate on a «precarious financial footing», and that «skyrocketing valuations» had driven up the share prices of seven companies. Adani listed up to 85. % beyond the actual value.

US billionaire investor Bill Ackman said on Thursday he found the Hindenburg report «very credible and extremely well-researched».

Hindenburg said he held short positions in Adani through its US-traded bonds and non-India-traded derivatives, meaning he bet their price would fall.

Adani Group has repeatedly faced and dismissed concerns about debt levels. He defended himself Thursday in a presentation titled «The myths of the short seller», saying that the deleveraging of promoters – or key shareholders – was «in a phase of strong growth».

Jefferies, in a client note, said Adani Group had shared details of debt and debt levels, and that it «does not see any material risk to the Indian banking sector.»

Adani Group’s consolidated gross debt stood at 1.9 trillion rupees ($23.34 billion), Jefferies said.

Adani said its debt was at a manageable level and no investors had raised concerns.

Adani Enterprises’ net profit for the period ended September 30, 2022 doubled to 9 billion Indian rupees ($110.31 million) while its total revenue nearly tripled to 795 billion Indian rupees, according to its share sales prospectus.

The company’s total liabilities as of September 2022 stood at 869 billion rupees ($10.64 billion), according to the prospectus.

Conglomerate Adani has diversified its business interests and last year bought cement companies 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 as much as 25%.

Reporting by Mr. Sriram and Chris Thomas; Editing by Aditya Kalra, Christopher Cushing and Kim Coghill

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