By Chris Thomas, Sriram Mani and Aditya Kalra
MUMBAI (Reuters) -Shares of India’s Adani Enterprises plunged on Friday as a scathing report by a U.S. short seller triggered a massive selloff in the conglomerate’s listed firms, casting doubts on the company’s record $2.45 billion secondary offering.
Seven listed companies of the Adani conglomerate – controlled by one of the world’s richest men Gautam Adani – have lost a combined $48 billion in market capitalisation since Wednesday, with U.S. bonds of Adani firms also falling after Hindenburg Research flagged concerns in a Jan. 24 report about debt levels and the use of tax havens.
The rout took shares of Adani Enterprises, the group’s flagship company, well below the offer price of its secondary sale that had initially been offered at a discount. As bidding started on Friday, the issue was subscribed by less than 1%, raising concerns over whether it would be able to proceed.
“The sell-off is seriously extreme … it has clearly dented overall investor sentiment in the market,” said Saurabh Jain, assistant vice-president of research at SMC Global Securities.
The Adani Group is concerned about the fall in share prices but continues to be in a wait and see mode as the share sale continues until Jan. 31, said two people with direct knowledge of the discussions.
India’s capital markets regulator is studying the Hindenburg report and may use it to aid its own ongoing probe into offshore fund holdings of Adani Group, two other sources said. Spokepersons for the regulator and Adani had no immediate comment.
Adani Group has dismissed the Hindenburg report as baseless and said it is considering whether to take legal action against the New York-based firm.
With a net worth of $96.6 billion, billionaire Gautam Adani is now the world’s seventh richest man, according to Forbes, slipping from the third position he held before the Hindenburg report.
Adani met the country’s power minister R.K. Singh on Friday, but the agenda of the meeting was not immediately known.
The billionaire hails from the western state of Gujarat, the home state of Prime Minister Narendra Modi. India’s main opposition Congress party has often accused Adani and other billionaires of getting favourable policy treatment from Modi’s administration, allegations the billionaire denies.
The stunning market selloff has cast a shadow over Adani Enterprises’ secondary share sale that started on Friday. The anchor portion of the sale saw participation from investors including the Abu Dhabi Investment Authority and Maybank Securities on Wednesday.
As of 1012 GMT, investors, mostly retail, had bid for around 366,000 shares of Adani Enterprises, compared with 45.5 million on offer, according to Indian stock exchange data. The share sale is being managed by Jefferies, India’s SBI Capital Markets, Axis Capital, and ICICI Securities among others.
The firm has set a floor price of 3,112 rupees ($38.22) a share and a cap of 3,276 rupees. But on Friday the stock ended at 2,761.45 rupees – well below the lower end of the range.
Shares of other listed Adani firms also plummeted, with Adani Transmission Ltd, Adani Total Gas and Adani Green Energy sinking 20% each – marking their worst day ever – while Adani Ports and Special Economic Zone fell 16.3%.
Investors’ worries extended to Indian banks with exposure to Adani debt. The Nifty Bank index fell over 3%, while the broader 50-share Nifty index ended down 1.6%.
CLSA estimates that Indian banks were exposed to about 40% of the 2 trillion rupees ($24.53 billion) of Adani Group debt in the fiscal year to March 2022.
U.S. dollar-denominated bonds issued by Adani Green Energy extended this week’s sharp falls to just under 77 cents on the dollar to their lowest since November, Tradeweb data showed.
In its report, Hindenburg said key listed Adani Group companies had “substantial debt”, putting the conglomerate on a “precarious financial footing”. It also said “sky-high valuations” had pushed the share prices of seven listed Adani companies as much as 85% beyond actual value.
Billionaire U.S. investor Bill Ackman said on Thursday that he found the Hindenburg report “highly credible and extremely well researched.” Ackman had bet $1 billion against Herbalife Ltd starting in 2012, but eventually exited his position at a loss.
Hindenburg said it held short positions in Adani through its U.S.-traded bonds and non-Indian-traded derivative instruments.
Adani Group has repeatedly dismissed concern about its debt levels. It defended itself in a presentation titled “Myths of Short Seller” on Thursday, saying deleveraging by promoters – or key shareholders – was “in a high growth phase”.
Jefferies said in a client note it does not see material risk arising to Indian banks sector from the group’s debt. Adani has said its borrowings were manageable and that no investor has raised any concern.
Adani has been diversifying its business interests and last year bought cement firms ACC and Ambuja Cements from Switzerland’s Holcim for $10.5 billion. ACC shares slid 13.2% on Friday, while Ambuja plunged 17.3%.
(Reporting by M. Sriram and Chris Thomas; Additional reporting by Bharath Rajeshwaran, Rama Venkat and Sethuraman NR; Editing by Christopher Cushing and Kim Coghill)
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