What’s Next for Adani Group After Short Seller Hindenburg Report Wipes Out Over $50 Billion in Market Value

Indian stock markets were rattled last week by the attack on the Adani Group from US activist investor and short-seller Hindenburg Research’s report into the Indian conglomerate caused Adani’s shares to fall spectacularly. Five of the seven listed Adani Group companies ended the day after 16% to 20% lower, and the other two were halted at the maximum 5% permitted by India’s exchanges for their stocks. Indian stocks had been at all-time highs just over a month ago, the market’s benchmark Nifty 50 index, which includes two Adani companies, fell to a three-month low Friday.

Gautam Adani via Indian Express

The timing of the release was for maximum impact as India’s stock market was closed on Thursday for a public holiday.

Hindenburg said it was shorting the Adani conglomerate’s US-traded bonds and non-Indian-traded derivative instruments. It accused the group of “brazen” market manipulation and accounting fraud.

What Hindenburg Sees as Adani Stocks True Value

Adani Stocks had “Mysteriously Surged in price.”

Founder Gautam Adani’s wealth plummeted by $20 billion on the move.

The 60-year-old had built a business empire with assets that include airports, renewable energy projects, coal mines, cement producers and ports.

The seven Adani companies have lost the equivalent of over US$50 billion in market value since Hindenburg’s report was published. They had a total market capitalization of about $217 billion earlier this week, according to FactSet.

Throwing kerosene on the fire was a tweet by U.S. hedge-fund manager Bill Ackman, another high-profile short seller, that expressed support for Hindenburg.

Mr. Ackman said he doesn’t have a position in any Adani companies, said he had found the Hindenburg report “highly credible and extremely well researched.”

A key focus of the Hindenburg report was three $100 million-plus transactions relating to the Carmichael project and associated infrastructure with the U.S. short seller’s allegations of fraud. The Carmichael mine, rail and port assets form Adani’s key strategic asset in Australia.

Adani Response

Adani Group on Thursday called Hindenburg’s fraud allegations baseless and accused the short seller of trying to smear its reputation and derail a public stock offering by one of its companies. Adani Enterprises Ltd., the group’s flagship company, is in the process of raising the equivalent of $2.5 billion via a follow-on public share sale. On Friday, it opened the offering to individual investors in the country, and is expects to close subscriptions on Jan. 31.

An Adani spokesperson on Friday said the group didn’t have an immediate comment on the stock selloff.

The company had set a floor of 3,112 Indian rupees, equivalent to $38 a share for the offering. Its shares closed around 11% below that price on Friday.

Adani Enterprises said it had already secured commitments for the deal from more than 30 so-called anchor investors, including several international securities firms, the Abu Dhabi Investment Authority, Life Insurance Corp. of India and SBI Life Insurance Co. Ltd. Clearly the timing of the Hindenburg report was not coincidental.

The group also said it is considering legal action against Hindenburg.

“Regarding the company’s threats of legal action, to be clear, we welcome it,” the research firm said in a Twitter post on Wednesday, adding that it was standing by its report. “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 the legal process.”

In response Adani’s Australian arm, Bravus, said the three transactions, $147 million from the privately owned Carmichael Rail to buy assets from Adani Mining; a $100 million line of credit from Adani Global to Carmichael Rail to pay its debts and $100 million security deposit from an Adani private family trust in the Caribbean to use its North Queensland Export Terminal were all above board.

“All our businesses are Australian companies that comply with Australian corporations and securities legislation,” a Bravus spokeswoman told AFR Weekend.

“The North Queensland Export Terminal [NQXT] is an Australian company owned by a private trust and all of its financial arrangements comply with Australian law.”

The Bravus spokeswoman said the NQXT was a multi-user terminal and Adani Mining was one of more than nine long-term customers.

“As part of any long-term take-or-pay contract for accessing the port infrastructure such as NQXT, users typically provide credit support in order to secure their obligations,” the spokeswoman said.

Background On Adani Group via Hindenburg

Adani Group is the 2nd largest conglomerate in India, run by its Chairman and Founder Gautam Adani, who is currently the 3rd richest man on earth, previously having reached the #2 spot. (Source: Bloomberg)
The group has 7 key publicly listed equities (9 in total) with a collective market value of about INR 17.8 trillion (U.S. $218 billion).

It also includes a maze of Adani private companies and family trusts. Through their holdings in the group, Gautam Adani and his family have amassed a paper fortune of over U.S. $120 billion, with over $100 billion of that coming in the past 3 years, largely through the meteoric appreciation of its stock prices.

The conglomerate is involved in a wide array of businesses, largely focused on key infrastructure projects such as development of ports, mines, airports, data centers, power generation and power transmission.

The 7 key Adani listed companies have seen their stock prices mysteriously surge over the past 3 years – with most increasing multifold – ranking them individually among the largest companies in India. Both Adani Enterprises and Adani Ports feature in India’s Nifty 50 index and 6 of the companies are included in the MSCI India Index

Source: Hindenburg, Bloomberg, AFR

From The TradersCommunity Research Desk