What’s Next for Indian Billionaire Gautam Adani as Group’s Debt Trouble Drops to ‘Troubled’ Level?


MUMBAI: Gautam Adani’s troubled empire is in crisis as a collapse in the debt-laden conglomerate’s securities intensifies in the aftermath of fraud allegations.

Bonds in the Indian billionaire’s flagship company tumbled to lows in U.S. trading, abruptly pulling back a record domestic share sale after Adani Group suffered a $92 billion market crash. Banks either want more collateral for loans, or are reviewing the value of corporate debt to base their loans on.

The question now is what Adani will do to prevent the unrest from spiraling out of control, especially after a setback in an equity offering that would have been India’s largest and further bolstered his global profile. The risk is also that more and more financial institutions are looking at their exposure to business empires ranging from ports to green energy.

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“The biggest risk is if Adani Group faces a serious deterioration in access to funding, particularly in its highly leveraged entities,” Leonard Law, senior credit analyst at Lucror Analytics, wrote in a note. Any liquidity crunch in one entity could have knock-on effects on the wider group’s access to funding. That said, the group is likely to continue raising funds from onshore banks and bonds for now.”

Citigroup’s wealth arm has joined Credit Suisse in stopping accepting Adani group of companies’ securities as collateral for margin loans as banks step up scrutiny of the Indian tycoon’s finances.

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Hindenburg Research last week accused Adani Group of “brazenly” market manipulation and accounting fraud, sparking a sharp sell-off in shares. Adani has repeatedly denied the allegations, calling the report “false” and threatening legal action.

In a video presentation last Thursday, Adani said that Adani Enterprises’ decision to withdraw the subsequent share sale will not have any impact on its existing business and future plans. “Our company’s fundamentals are strong. Our balance sheet is healthy and our assets are solid. We will review our capital markets strategy once markets stabilize.”

Will the government help?

Eyes are also on what Prime Minister Narendra Modi’s government might do to help ease the bloc’s plight, given the latter’s importance to the country’s economy. The Hindenburg report also raised questions about corporate governance in India, while Adani himself called the report an attack on India itself.

Things escalated on Wednesday, with Adani Enterprises Ltd plunging a record 28%. The company then walked away from a $2.4 billion follow-on share sale, although it was fully subscribed with the backing of prominent Indian and Gulf investors.

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

Bonds issued by Adani Ports & Special Economic Zone Ltd. and Adani Green Energy Ltd. fell the most in secondary trading globally on Wednesday. Some of the companies’ notes yield more than 30%, well above the average investment-grade yield of 4.96% and the junk-bond yield of 8.14%.

Adani Ports’ July 2024 3.375 percent bond fell more than 20 cents to 69.75 cents in investment-grade secondary trade, according to Trace data. At least four Adani Ports bonds hit lows, falling to 69 cents or lower.

Adani Green Energy’s 4.375% bond fell more than 12 cents to 66.75 cents in high-yield secondary trading, according to Trace data.

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Adani Enterprises was fully subscribed in India’s largest follow-on share sale on Tuesday, the last day for bids, as interest from existing shareholders and institutional investors surged at the last minute. The expected completion of the deal was seen as a victory for Adani.

That said, investors who bought in the quoted range of Rs 3,112 to Rs 3,276 will immediately suffer huge losses as the company’s shares closed at Rs 2,135.35 on Wednesday.

“The problem now is that the dynamic is becoming a self-reinforcing negative feedback loop where investors are now just selling shares and asking questions later,” said Peter Garnley, head of equity strategy at Saxo Bank.


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