NEW DELHI, Feb 2 (Reuters) – Shares in India’s Adani group sank on Thursday after market turmoil forced the conglomerate to ax a landmark $2.5 billion share offering, deepening market losses by more than $100 billion and sparking concerns about potential systemic impact.
The pullback in Adani Enterprises’ ( ADEL.NS ) share sale was a dramatic setback for billionaire school dropout Gautam Adani, whose fortunes have risen rapidly in recent years but declined sharply due to criticism from a U.S.-based short seller. The investigation report was released on January 24.
The events are an embarrassing turn for the billionaire, who has partnered with foreign players and marquee investors in the global expansion of businesses ranging from ports to mining and cement.
Late on Tuesday, Adani halted the share sale despite the offer being fully subscribed on Tuesday, fueled by short-seller Hindenburg’s criticism. As a result of the attack, Adani also lost the title of the richest man in Asia.
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The group’s flagship firm – Adani Enterprises ( ADEL.NS ) – fell 10% after opening on Thursday. Other group companies – Adani Ports and Special Economic Zone ( APSE.NS ), Adani Total Gas ( ADAG.NS ), Adani Green Energy ( ADNA.NS ) and Adani Transmission ( ADAI.NS ) – each fell 10%, while Adani Power while (ADAN.NS) and Adani Wilmar (ADAW.NS) each fell 5%.
Adani has dropped to 16th place on Forbes’ list of the world’s richest people, down from third place last week.
“As we have seen earlier, the selling may intensify in the afternoon session. If Adani fails to restore the confidence of institutional investors, the stock will fall freely,” said Avinash Gorakshakar, head of research at Mumbai-based Profitmart Securities.
The drop in Adani’s shares has fueled concerns about the possibility of a wider impact on India’s financial system.
India’s central bank has asked domestic banks for details of their exposure to the Adani group of companies, government and banking sources told Reuters on Thursday. CLSA estimates that Indian banks are exposed to about 40% of the Adani group’s 2 trillion rupees ($24.53 billion) in debt in the fiscal year to March 2022.
Citigroup’s ( CN ) wealth unit has stopped providing margin loans to clients against Adani group securities and on Thursday decided to cut the loan-to-value ratio for loans against Adani securities to zero.
Opposition MPs in New Delhi submitted notices to the Indian Parliament, demanding a discussion of the US short-term report. Congress party lawmaker Manish Tewari said he would seek a Joint Parliamentary Committee inquiry into the matter, Reuters partner ANI reported.
ADANI VS HINDENBURG
A Hindenburg report last week alleged improper use of offshore tax havens and share manipulation by the Adani group. It also raised concerns about high debt and the valuations of Adani’s seven listed companies.
The Adani group denied the charges, saying the short seller’s allegation of stock manipulation had “no merit” and stemmed from ignorance of Indian laws. The Group has always made the necessary regulatory disclosures, added.
Earlier this week, the Adani group said it had the full support of investors, but investor confidence has waned in recent days.
As the stock fell after the Hindenburg report, Adani was able to secure share sale subscriptions even though the market price of the stock was lower than the offer price of the issue. But on Wednesday, the shares fell again.
Late on Wednesday, Adani said it was withdrawing the share sale because the company’s “share price fluctuated throughout the day. Given these extraordinary circumstances, the company’s board felt it was not ethical to proceed with the matter. It is right.”
In a video message on Thursday morning, Adani said “the interest of my investors is paramount and everything else is secondary. Hence, we have withdrawn the share sale to protect investors from potential losses.”
Reporting by Chris Thomas, Aditya Kalra and Nallur Sethuraman in Bengaluru; Edited by Muralikumar Anantharaman
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