Adani rout crosses $51b as stocks plunge by daily limits

The selloff in Gautam Adani's corporate empire accelerated on Friday, erasing more than $51 billion of market value in two sessions as Asia's richest man struggles to contain the fallout from a scathing report by US short-seller Hindenburg Research.

The rout is piling pressure on the Indian tycoon as it erodes his net worth and threatens to sour investor sentiment toward the $2.5 billion share sale by his flagship firm Adani Enterprises Ltd. Losses deepened even after the Adani Group disputed Hindenburg's allegations in a Thursday call with bondholders and pledged to release a detailed rebuttal on Friday.

Adani Enterprises lost almost 19% on Friday, the most since 2017. The stock closed about 11% below the lower end of the price band set for the follow-on equity sale. Some units like Adani Green Energy Ltd. and Adani Total Gas plunged by the daily 20% limit, adding to a $12 billion selloff in group companies on Wednesday. Volumes in these stocks were at least triple their three-month average.

The selloff hit sentiment in the broader Indian market as trading resumed after Thursday's holiday. The benchmark NSE Nifty 50 Index lost 1.6%, the worst performance in Asia, with bank stocks among those leading losses as investors fretted over their exposure to the Adani group.

"The issues strike at the heart of the Indian corporate sector scene where a number of family-controlled conglomerates dominate," said Gary Dugan, chief executive officer of the Global CIO Office. "By their very nature they are opaque, and global investors have to take on trust the issues of corporate governance."

"After last year's stellar performance, Indian equities and any high-profile company's shares are open to downside risk of profit-taking," Dugan added. "Hence, the broader Indian equity market could be at risk of further downside, with Adani the catalyst."

Adani Wealth

The slump in Adani shares follows breathtaking gains in recent years, including some of Asia's biggest returns in 2022. The five-year advance in Adani Enterprises trumped even the likes of Elon Musk's Tesla Inc., vaulting Adani from relative obscurity into the ranks of the world's richest people. 

The current rout has plunged Adani's fortune below the $100 billion threshold he surpassed in April last year. It stood at about $93 billion at the close in Mumbai, according to the Bloomberg Billionaires Index. Taken together, he's lost roughly $26 billion since Hindenburg's report was published, more than one-fifth of his fortune.

Concerns about the group's finances have percolated throughout the tycoon's rise, with CreditSights saying in August that Adani's conglomerate is "deeply overleveraged" with "stretched balance sheets." But the Hindenburg report has put an unprecedented spotlight on the group's corporate governance — as well as that of India as a whole.

Hindenburg issued a report on Jan. 24 detailing wide-ranging allegations of corporate malpractice following a two-year investigation into the tycoon's companies. Adani Group has said it's exploring legal action after a "maliciously mischievous, unresearched" report by the short seller. Hindenburg has said it fully stands by its report, adding that any legal action taken against it would be meritless, according to a statement on Twitter.

Companies linked to Adani Group plan a detailed response Friday to the report that they labeled as "bogus," according to bondholders who joined a conference call with Adani executives. On the call, investors were told that the US-based short seller's assertions of accounting fraud were "devoid of facts."

"It seems like there might be more downside and this report can become a big legal issue as it is causing reputational damage too," said Sameer Kalra, founder of Target Investing in Mumbai.

Share Sale

Hindenburg Research released its report just as Adani Enterprises was seeking to attract a broader network of local and global investors for its share sale. The transaction, India's biggest ever primary follow-on public offering, had already lured a number of anchor investors before the Hindenburg report emerged, though retail investors and high net worth individuals can bid for shares starting today through 31 Jan. 

Overall subscription for the offering was at 1% as of 3:30 pm in Mumbai. The portion reserved for retail investors was sold 1% while company employees put in bids for 4% of the shares offered, stock exchange data showed. Investors in Indian public offerings typically wait until the last day of the sale to place bids.

Some market watchers said the impact to the broader market will be limited.

The bulk of India's equity benchmarks are made up of "very high quality" banks, consumer and IT services companies, and the risk to the indexes from Hindenburg Research's report on Adani Group "is not meaningful," Neelkanth Mishra, co-head of Asia Pacific equity strategy and India equity strategist at Credit Suisse, said on Bloomberg Television.