Adani's lessons from Hindenburg hit fuel $93 billion rebound

One of the biggest ever corporate takedowns by a short-seller may have been a blessing in disguise for billionaire Gautam Adani.

A year after US-based short-seller Hindenburg Research accused the Adani Group of fraud and "brazen" stock price manipulation in a bombshell report — allegations the conglomerate denies — the Indian tycoon has emerged stronger on some measures of business fundamentals.

His ports-to-power empire has trimmed debt, pared founders' share pledges, won new backers from the US to the Middle East, bagged landmark projects and begun to communicate more often with investors and lenders. It's helping ferry a rising number of air passengers and cargo containers. It's also building a new airport for India's financial capital, Mumbai, and redeveloping the city's sprawling Dharavi slum.

Fallout from Hindenburg's report still lingers. While Adani stocks have risen more than $90 billion from last year's low, they remain about $60 billion short of their pre-Hindenburg peak. Meanwhile, most of the group's dollar bonds have recouped their losses.

Critics including opposition political parties have continued to raise questions about a perceived closeness to Prime Minister Narendra Modi, as well as a complex web of opaque offshore firms. The auditor for the group's ports business resigned last year, adding to questions around its accounting practices. Adani Group representatives didn't respond to requests for comment. The conglomerate has said it complies with all laws and follows all accounting rules, while the billionaire has said that his firms don't receive preferential treatment from the government.

Despite such issues, many investors now believe that the Adani empire is once again on an ascent. A Supreme Court verdict rejecting appeals for a special investigation, new marquee investors and the US agency funding "have all given greater comfort to both institutional and retail investors," said Chakri Lokapriya, managing director of RedStrawBerry LLP, a Chennai-based asset management company. The year after the short-seller broadside "has proved to be a blessing for the Adani Group," Lokapriya said.

Much of the conglomerate's resilience comes from its sprawling infrastructure empire — port terminals, power lines, airports, data centers, solar parks and cement plants. That has put Adani in the center of an India boom that investors are keen to tap into. The South Asian nation is emerging as a rare growth story in a flat-lining global economy hungry for China-alternatives.

Below is a selection of business metrics on Adani's empire since the short-seller's broadside on Jan. 24 last year:

Unencumbered and Rallying

Hindenburg's report sent Adani stocks into a tailspin, eroding tens of billions in market value and leaving the founders vulnerable to margin calls on their pledged shares. Adani and his family prepaid $2.15 billion and have drastically reduced their pledged holdings.

The group also lured in almost $5 billion in investments, the bulk of it from star investor Rajiv Jain's GQG Partners LLC which cut against the grain to buy stakes in four Adani firms in March and has plowed in more money since then.

The combined market value of 10 listed Adani companies is now at about $175 billion — a jump of around 112% from the record low of $82 billion in February last year after the short-seller report. Five of them have erased all the losses seen after Hindenburg's report.

The latest upswing in the stocks is being driven by the Indian Supreme Court's verdict rejecting appeals for a federal probe or special investigation into Adani's businesses, and a $553-million investment by a US-backed agency in the group's port business in Sri Lanka.

"The silver lining of the Hindenburg report was that investors, who were unable to get entry into Adani shares at a good price, got the opportunity to own these stocks," said Alok Churiwala, managing director at Churiwala Securities Pvt in Mumbai.

Adani Group, however, still needs to bolster analyst coverage. It's scant for most of its firms except the ports business and the newly acquired cement makers. The conglomerate would also benefit from expanding its public float to ward off outsized stock swings.

Credit Markets

The conglomerate's net debt fell 3.5% to $21.72 billion in the six months through September, according to a presentation filed to exchanges. It's net debt-to-Ebitda ratio decreased to 2.5 in September compared to 3.3 in March. This ratio was at 3.9 for the group it said in August 2022 — the pre-Hindenburg phase that was characterized by frenzied expansion.

As of Jan. 19, 13 of Adani Group's 15 dollar denominated bonds were above 80 cents on the dollar — a level generally considered as the cut-off for a bond being distressed. The vast majority were trading higher than their levels touched last year after the report, according to data compiled by Bloomberg.

The group also managed to refinance $3.5 billion debt in October, displaying growing confidence among creditors.

Building, Powering India

Adani, who rose from being a diamond trader in Mumbai in the 1980s, rebounded from the short-seller crisis in good measure because he's building or operating some of the biggest infrastructure projects in India.

"If you take out the Adani label, the 'port to power' business itself is a decent way to express your view on India and you can't really find fault with the India growth story," said Xuchen Zhang, emerging markets credit analyst at Jupiter Asset Management in London.

Data compiled by Bloomberg show Adani handles almost half of all shipping containers in India, a third of all coal transported, and about one-fifth of private thermal power capacity.

The infrastructure investment boom is in the "early stages" in India and "Adani has a lot of fuel in the tank," GQG's Jain told Bloomberg TV earlier this month.

The tycoon also aligns his business strategies to Modi's nation-building priorities. "The government stands behind the company and it serves important functions in key areas of the economy," said Sabrina Jacobs, London-based client portfolio manager for fixed income at Pictet Asset Management.

That also points to another possible fault line for the conglomerate — the political risk for Adani whose rise has been almost parallel to Modi's ascent to power. India will hold national elections this year in which Modi will be making a strong claim to return for his third term as the Prime Minister.

A December 2023 poll by ABP News-CVoter said that the BJP-led National Democratic Alliance would return to power comfortably this summer.

One of the biggest continuing overhangs is the local market regulator's probe into the Adani Group on whether it violated securities laws. India's top court asked the regulator on Jan. 3 to conclude its investigation within three months.

New Believers

While Adani Enterprises Ltd.'s scrapped $2.5 billion share sale — a big casualty of the Hindenburg report — failed to expand the investor base, the group has benefited from new marquee backers.

GQG's Jain is so bullish that he wants to be "one of the largest investors in Adani Group" after the founders in five years. Past investors Qatar Investment Authority, TotalEnergies SE and Abu Dhabi-based International Holding Co. have doubled down in the past few months.

The Adani family is also making changes. The family is setting up a Special Purpose Vehicle in Abu Dhabi's international financial center, joining dozens of other high net worth individuals who want to protect their wealth.

In late February, Adani's Dubai-based elder brother Vinod Adani, who Hindenburg alleged held a pivotal role in opaque offshore entities connected to the conglomerate, stepped down as director of three companies connected to the family's controversial coal mine in Australia.

Adani "keeps facing reputational challenges, but he shakes them off and keeps doing business," said Michael Kugelman, director of the South Asia Institute at the Wilson Center in Washington.