Reuters reported on Monday (13 Feb) that the rout in the share prices of India’s Adani Group continued despite the group trying to assure investors that its cashflows are strong and that it remains confident of “delivering attractive returns” to shareholders.
On Monday, all the stocks of the Adani group were under pressure. Adani Enterprises fell 7 per cent, while Adani Total Gas, Adani Power and Adani Transmission continued to lose 5 per cent each.
In total, the group has lost about US$120 billion in market value since the publication of a report by Hindenburg Research on 24 Jan last month, alleging security fraud by the group.
Adani Total has lost 70 per cent since the Hindenburg report, while Adani Enterprises is down 50 per cent.
Meanwhile, its group chairman Gautam Adani has denied the charges.
In Mumbai, opposition political workers and activists marched shouting anti-Adani slogans and holding posters with cartoons of Adani and PM Narendra Modi. Opposition members accuse Modi’s government of giving undue favours to the Adani Group.
“Brazen stock manipulation”
After a two-year investigation, the Hindenburg report charged that Adani’s conglomerate was engaging in a “brazen stock manipulation and accounting fraud scheme over the course of decades.”
According to Hindenburg’s report, it alleged that Gautam Adani’s elder brother, Vinod Adani, has been managing a network of offshore entities used to facilitate security fraud linked to the Adani Group. Some of the entities were said to have been set up by Vinod in Singapore with paid-up capitals of just S$1,000. Vinod is a PR in Singapore. This has been ascertained by TOC:
“Many of the Vinod Adani-associated entities have no obvious signs of operations, including no reported employees, no independent addresses or phone numbers and no meaningful online presence. Despite this, they have collectively moved billions of dollars into Indian Adani publicly listed and private entities, often without required disclosure of the related party nature of the deals,” said Hindenburg.
“Many of these entities later appear in suspect transactions, often funneling assets into or out of the Adani Group companies. We have also identified an instance where a private entity seems to have been used to help listed Adani Enterprises avoid reporting losses, bolstering the appearance of its reported earnings.”
Concerns over banks’ exposure to Adani Group
The swift share decline of Adani Group companies has sparked concerns over the broader systemic risk to Indian markets. India’s central bank has asked its local banks for the details of their exposure to the Adani conglomerate.
Moody’s has downgraded the ratings outlook for some Adani companies, while index provider MSCI said it would cut the weightings of some in its stock indexes.
Among the group of banks lending money to Adani Group is Singapore’s DBS.
It acknowledged on Monday that it has a S$1.3 billion exposure to Adani group companies, but DBS CEO Piyush Gupta said it was not concerned about its exposure to the group.
“They’re solid, cash-generating companies, so we’re not concerned about the exposure,” Gupta told the media. He said that Adani’s companies are “working well” and that their cash flows are “secure”.
“We have no exposure to any of the shares of Adani or promoter financing of Adani, so we are not affected by all these changes in the share prices or promoter share prices. So right now, we have no concerns about exposure. We don’t expect to do anything (about it),” he added.
However, foreign banks such as Citigroup, Credit Suisse and Standard Chartered Bank have reportedly stopped accepting bonds and other securities of the group as collateral for margin loans.
Asked whether he expects financing costs for Indian companies to rise as a result of the Adani turmoil, Gupta said, “I don’t think so. If you look at India, pricing has always been exceptionally low. In fact, the Indian large corporates borrow at way below India country risk. So the general view that this is going to tarnish all of the industry, I don’t see that happening.”
DBS has been the most aggressive among local banks in expanding in India. In November 2020, it completed its takeover of India’s Lakshmi Vilas Bank. It was the first time India turned to a foreign bank to rescue a struggling Indian bank.
