Three weeks after the publication of a research report that attacked the business of the Indian Adani Group, which controls the port of Haifa, and accused it of allegedly manipulating stock prices and accounting fraud, the share prices of the group’s companies have stabilized. After losing about half of the aggregate value (about 100 billion dollars) since the publication of the report by the American research company Hindenburg, some shares recovered and jumped by tens of percent on the Indian stock exchange on Wednesday at noon.
● Losses of billions: The Wall Street companies exposed to the fall in Adani shares
● The shorts pounced, the stocks fell: the Adani shakeup in India could reach Haifa
● Billionaire Gautam Adani, who owns the Haifa port, abandons an IPO worth 2.5 billion dollars
In the meantime, it turns out that, at least in the Israeli arena, the financial entities exposed to the Adani Group’s business are not worried about a possible deterioration in its situation. This is a consortium of financiers led by Mizrahi Tefahot Bank, who agreed last November on providing credit in the amount of more than one billion shekels for the purchase of Haifa Port, to a group consisting of Adani Ports (70%) and the Israeli company Gadot, led by the Tana Fund.
The payment in the tender for the purchase of the port for NIS 3.9 billion – a deal that was closed at the beginning of last month – was structured so that the winning group poured in about NIS 1 billion in equity, and the balance in credit.
From the credit for the purchase, the Adani Group itself provided an inferior loan in the amount of NIS 1.7 billion. The balance was taken from the Israeli entities in a “bolt” loan (where the principal is paid at the end of the period) for a period of three years, in the amount of NIS 1.1 billion and with a high interest rate of about 8%.
Against the credit provided by the Israeli entities, the port itself was encumbered, so that the loan to collateral value (LTV) ratio is about 25%. This is a low leverage ratio, which in an extreme scenario where the affairs concerning the Adani group lead to financial entanglement to the point of insolvency, leaves the Israeli lenders “on safe ground”.
Besides Bank Mizrahi Tefahot, it includes consortia lending to the Meitav Investment House (sharing about 90% of the loan amount) and the International Bank (about 10%).
“The short-term credit was taken to complete the transaction on time,” says a source in the market, privy to the details. “Adani surprised when he offered to provide the credit on his behalf, which in practice is inferior to the one granted by the banks.”
“Great understanding in the fields of shipping and logistics”
The action plan of the buyers is to refinance the credit under more favorable conditions, in three years. Although they can apparently distribute dividends during this period, as a result of profits accumulated from the port’s operations after the purchase transaction, they do not intend to do so.
We note that in an extreme scenario where the Adani Group is forced to relinquish its holdings in Haifa Port, any other landlord who replaces it will have to obtain ownership approval from the State of Israel. What’s more: a violation of clauses in the “Decree of Interests” signed by the group that purchased the port with the state, allows the state to act on its own to find a new landlord in the port.
On the Israeli side, says one of the sources, the influence of the scandals that stirred up Adani’s public companies is not felt at the moment. “The Adani Group’s contribution to the Port of Haifa in its daily work is enormous,” he says. “In recent months, they are starting to divert shipping lines to the port of Haifa. Their understanding of shipping and logistics is tremendous.”
“No more than a lie by the Manhattan Maddops”
Gautam Adani (60), who heads the group, is considered one of the richest in the world. However, since the publication of the Hindenburg report and the collapse of his shares, he has been pushed out of the title of the richest man in Asia. His current value is estimated at about 64 billion dollars according to Bloomberg’s ranking of billionaires – compared to about 110 billion dollars before the provision began.
The Adani Group operates in a variety of fields in the infrastructure, industry, ports and energy sectors, through seven public companies. The group last month denied the serious claims of Hindenburg, an investment research company that specializes in short selling. On Adani’s behalf, it was stated that the claims are “nothing more than a lie by the Madoffs of Manhattan”, but the group’s announcement failed to reassure investors.
In terms of market value, the largest company in the group is Adani Enterprises, whose current market value is approximately $30 billion. In second place is Adani Total Gas, whose market value is 20 billion dollars. Adani Ports, owner of Haifa Port, trades according to a market value of about 16 billion dollars – after a decrease of about 30% following the Hindenburg report.
The Adani-Gadot Group responded: “The port company is a solid company, with a high AA rating, no debts and a high cash balance.
“The bank debt of the group itself is also very solid, with assets worth 4 times as much.”