Fall in Adani shares widens to $104 billion after flagship firm cancels share sale

(Bloomberg) — The fall in stocks in the beleaguered empire of Gautam Adani deepened to over $100 billion as the fallout from allegations of fraud by a short seller forced the Indian billionaire to withdraw a record stock offer and announce a review of his capital market strategy.

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Shares of Adani Enterprises Ltd. fell over 15% before recovering some of the losses. Shares fell 28% on Wednesday, prompting the company to forego a subsequent $2.4 billion share sale to shield investors from potential losses. Most of the group’s other nine stocks also fell.

The crisis wiped out $104 billion in market value for the group’s shares as U.S. seller Hindenburg Research filed fraud allegations against the conglomerate. The group’s bonds also fell to troubled levels as banks either demanded more collateral on loans or scrutinized the value of companies’ debt in order to grant loans.

The question now is what Adani will do to prevent the unrest from spiraling out of control, especially after the failure of what would have been India’s biggest share offering, and further boost his global profile. The risk is also that more financial institutions are starting to scrutinize their impact on a business empire that stretches from ports to clean energy.

Read more: Adani abruptly withdraws from $2.4 billion share sale as crisis escalates

“The biggest risk is that the Adani Group will face a severe deterioration in access to finance, especially for its highly leveraged businesses,” Leonard Lowe, senior credit analyst at Lucror Analytics, wrote in a note. “This is because a lack of liquidity in any of the institutions can have a ripple effect on access to funding for the wider group. However, the group is likely to continue to raise funds from local banks and bonds for the time being.”

Asset Management Division of Citigroup Inc. also joined Credit Suisse Group AG in halting Adani’s securities as collateral for margin loans as banks step up scrutiny of the Indian tycoon’s finances.

Hindenburg Research last week accused Adani’s group of “brazen” market manipulation and accounting fraud, prompting an intense stock sell-off. Adani repeatedly denied the allegations, called the report a “fake” and threatened legal action.

Adani Enterprises’ decision to withdraw its subsequent share sale will have no impact on its current operations and future plans, Adani said in a video message Thursday. “The foundations of our company are strong. Our balance sheet is healthy and our assets are secure. As soon as the market stabilizes, we will review our capital market strategy.”

Attention is also focused on what Prime Minister Narendra Modi’s government, which is widely believed to have close ties to Adani, can do to help alleviate the group’s plight given the latter’s importance to the country’s economy. The Hindenburg Report also raised questions about corporate governance in India, with Adani himself calling the report an attack on the country itself.

The situation escalated on Wednesday, when shares in Adani Enterprises plunged a record 28%. He subsequently withdrew from a subsequent $2.4 billion share sale, although it was fully signed up with the backing of well-known investors from India and the Persian Gulf.

“It’s unusual for such a secondary offer to be canceled,” said Ben Silverman, director of research at VerityData. “Pulling out an offer at the last minute doesn’t inspire much confidence right now.”

The stress has also spread to the credit market.

Bonds issued by Adani Ports & Special Economic Zone Ltd. and Adani Green Energy Ltd., fell the most in global secondary trading on Wednesday. Some of the two companies’ bonds yield more than 30%, well above the average investment grade yield of 4.96% and the junk bond yield of 8.14%.

Adani Group is due to pay a $34.7 million coupon on its dollar bonds this week.

Adani Enterprises secured a full subscription for India’s largest share follow-on sale on Tuesday, the closing day for applications, amid a last-minute surge of interest from existing shareholders and institutional investors. The expected completion of the deal was seen as a victory for Adani.

However, when the company’s shares closed on Wednesday at Rs 2,135.35, investors who bought shares in the Rs 3,112 to Rs 3,276 range would have suffered immediate big losses.

Looking at the valuations, “Adani group stocks may have more downsides,” said Nitin Chanduka, an analyst at Bloomberg Intelligence. “Banks could take a hit if foreign outflows pick up and bonds default, but so far they haven’t missed interest payments.”

— With assistance from Abhishek Vishny, Matt Turner, Josiana Joshua, Finbarr Flynn and PR Sanjay.

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