What will Gautam Adani Do Next As Group’s Debt Issues Drop to Distressed Levels


Hindenburg Research last week accused the Adani group of “brazen” market manipulation and accounting fraud, setting off an intense selloff in the stocks.


MUMBAI — Gautam Adani’s beleaguered empire is spiraling into crisis, as the fallout from a short-seller’s fraud allegations leads to a worsening meltdown in the indebted conglomerate’s securities.

Bonds of the Indian billionaire’s flagship firm plunged to distressed levels in US trading, and the company abruptly pulled a record domestic stock offering after the Adani group suffered a $92 billion market crash. Banks either want more collateral for loans, or are scrutinizing the value of the company’s debt to lend against.

The question now is what Adani will do to prevent the turmoil from getting out of control, especially after the setback with the stock offering, which would have been India’s largest and further raise his global profile. The risk is also that more financial institutions start to scrutinise their exposure to a business empire that sprawls from ports to green energy.

“The biggest risk is if Adani Group faces a severe deterioration in access to financing, particularly at its highly leveraged entities,” Leonard Law, a senior credit analyst at Lucror Analytics, wrote in a note. “This is as a liquidity crunch at any one of the entities may have a ripple effect on financing access for the wider group. That said, the group can likely continue to raise funds from onshore banks and bonds for now.”

Hindenburg Research last week accused the Adani group of “brazen” market manipulation and accounting fraud, setting off an intense selloff in the stocks. Adani has repeatedly denied the allegations, called the report “bogus,” and threatened legal action.

Eyes are also on what the government of Prime Minister Narendra Modi, widely perceived to have close ties to Adani, might do to help ease group’s dire straits given the latter’s importance to the nation’s economy. Hindenburg’s report has also raised questions over India’s corporate governance, while Adani himself has called the report an attack on the country itself.

Matters escalated Wednesday with a record 28% plunge in Adani Enterprises Ltd. It subsequently abandoned a $2.4 billion follow-on share sale, even though it was fully subscribed with backing from prominent Indian and Gulf investors.

“Given these extraordinary circumstances, the company’s board felt that going ahead with the issue will not be morally correct,” it said in a statement. The company said it’s working with book-running lead managers to refund the proceeds received in escrow and to also release the amounts blocked in bank accounts for subscription to this issue.

“It’s unusual for a secondary offering like this to be canceled,” said Ben Silverman, director of research at VerityData. “Pulling an offering at the last minute doesn’t inspire a lot of confidence right now.”

Bonds issued by Adani Ports & Special Economic Zone Ltd. and Adani Green Energy Ltd. dropped the most in global secondary trading on Wednesday. Some notes of the two companies yield more than 30%, way over the average investment grade yield of 4.96% and junk bond yield of 8.14%.

Adani Ports’ 3.375% bond due July 2024 tumbled more than 20 cents on the dollar to 69.75 cents in investment-grade secondary trading, according to Trace data. At least four other Adani Ports bonds hit distressed levels, falling to 69 cents or lower.

Adani Green Energy’s 4.375% bond due Sept. 2024 declined more than 12 cents on the dollar to 66.75 cents in high-yield secondary trading, according to Trace data.

Adani Enterprises had secured full subscription for India’s largest follow-on share sale on Tuesday, the final day for bids, amid a last-minute surge in interest by existing shareholders and institutional investors. The expected completion of the deal was seen as a victory for Adani.

Still, with the company stock closing Wednesday at 2,135.35 rupees, investors who had bought at the offer range of between 3,112 rupees to 3,276 rupees would sitting on immediate big losses.

India’s SGX Nifty 50 Index futures extended declines to 0.8% after Adani’s decision. The gauge was flat ahead of the announcement.

“The problem now is that the dynamics are becoming a self-reinforcing negative feedback loop and investors are now just dumping the shares and asking questions later,” said Peter Garnry, head of equity strategy at Saxo Bank A/S.

Loan Collateral

Credit Suisse Group AG’s private banking arm has assigned a zero lending value for notes sold by Adani Ports and Special Economic Zone Ltd., Adani Green Energy and Adani Electricity Mumbai Ltd., according to people familiar with the matter. It had previously offered a lending value of about 75% for the Adani Ports notes, one of the people said.

When a private bank cuts lending value to zero, clients typically have to top up with cash or another form of collateral and if they fail to do so, their securities can be liquidated.

On Friday, Adani added about $300 million worth of shares for the $1 billion loan made by a group of banks, according to people familiar with the matter.

“The Adani family might need to pledge more shares given the drop in share prices, though they could still maintain a healthy headroom with the portion pledged at no more than 40%, based on our calculation,” Sharon Chen, credit analyst at Bloomberg Intelligence, wrote in a note.

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