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The recent stock manipulation allegations by Hindenburg Research on Adani Group companies have resulted in a stock rout of over $100 bn. While Gautam Adani has consistently refused all the allegations, investors have taken Hindenburg’s report to heart. However, more and more issues are now cropping up for Adani, as global investors as well as other firms try to distance themselves from the fraud allegations.
In the last week of January, Hindenburg Research said that Adani Group firms had an 85% downside risk based on fundamentals and their stocks had very high valuations. The next day, Adani stocks saw $5.6 bn being wiped off their value.
What happened with Adani Group stock rout?
Hindenburg claims it investigated the Adani fraud for two years, interviewed former executives and reviewed company documents, among other things. Gautam Adani’s rise in wealth by $100 bn over the past three years is largely due to the rise in the stock price of the seven key listed Adani firms, which have gained 819% during the said period.
The US-based short-seller said it expected Adani to reply to the questions raised in its report. While the Indian conglomerate termed the report “bogus” the stock rout led to it publishing a clarification on several of these questions. However, the market was not satisfied with the answers and Adani group stocks hit their lower circuit in consecutive sessions.
India’s markets regulator in early February launched a probe into the Adani Group stock rout, which has now resulted in Gautam Adani being pushed off the list of India’s top-10 richest, after spending some of the past few months as Asia’s richest.
Shortly after, Indian banks reported on their exposure to Adani debt, as the collateral against stocks was one of the major points raised by Hindenburg.
Overall, this has also affected the faith in India’s corporate governance practices, which led to foreign investors offloading Indian equities at a fast pace. Foreign portfolio investors sold a net $3.51 bn worth of Indian equities in January alone, the most since June 2022.
The Hindenburg report came just before Adani Enterprise’s follow-on public offer, which it eventually cancelled and said it will return money to all investors. Reports indicate that UK-bank Standard Chartered was no longer accepting bonds issued by Adani Group as collateral for margin lending.
What’s next for Adani?
Adani Group pre-paid $1.1 bn worth of loans that it had taken keeping shares as security to arrest the stock rout. The conglomerate has said it will prepay another $500 m of loans due next months to a group of foreign banks. Adani Ports has also said it will repay $605 m worth of loans following the shorting of its stocks.
This helped Adani stocks to recoup some of their losses, some even seeing gains of 20%. However, more trouble is now brewing for Adani: Index provider MSCI has said it is reviewing the free float shares of some of the group companies. This is after Norway’s sovereign wealth fund said it has completely sold its stake in Adani Group companies.
“MSCI has determined that the characteristics of certain investors have sufficient uncertainty that they should no longer be designated as free float,” MSCI said in a statement. “This determination has triggered a free float review of the Adani Group securities.”
The MSCI review decision again saw Adani Group companies’ shares take a nosedive on February 9, with some stocks down 20%.
“They (MSCI) concluded some holders heretofore in the float might not be float. They announce results tonight (Feb. 9). That can only be bad news for Adani Group companies. We don’t know numbers yet, but passive inclusion was one reason why stocks skyrocketed. Few of the companies will be unaffected. Some could be heavily affected,” said Insight Provider Travis Lundy of Quiddity Advisors who publishes on Smartkarma.
Separately, the whole fiasco has led to political mudslinging in the Indian parliament, which saw the opposition accusing the ruling BJP party of colluding with Gautam Adani.
