Indian billionaire Gautam Adani has tried to reassure investors after his company surprised investors by canceling the sale of its shares.
Adani Enterprises reported that will return to the buyers the US$2,500 million initially collected from the sale.
The decision will not affect “our existing operations and future plans,” Adani said.
The move ends a week that began with a fraud complaint by a US investment firm against Adani Group companies.
Adani’s corporation denies the allegations.
However, the companies in the group have seen their market value lose US$108,000 million In a few days.
Adani himself has lost US$48,000 million of his personal wealth and is now ranked 16th on Forbes magazine’s billionaires list.
How did this happen?
Less than two weeks ago Adani was the third richest man in the world.
Shares of Adani Enterprises, the flagship of his conglomerate in the energy sector, were due to go on sale on January 25 in India’s largest secondary share offering.
However, a day earlier the US-based investment firm Hindenburg Research published a report accusing the Adani Group of decades of “blatant” stock manipulation and accounting fraud.
Hindenburg specializes in “shorting” – betting against a company’s share price in the expectation that it will fall.
The Adani Group called the report “a malicious combination of selective misinformation and outdated, unsubstantiated and discredited allegations.” However, this response was not enough to allay investor fears.
The Adani Group manages seven publicly traded companies operating in a wide range of sectors, including commodity trading, airports, utilities, ports and renewable energy.
Billions of dollars have been invested in or loaned to companies linked to the group by numerous Indian banks and state-owned insurance companies.
That was it?
No. As the market slide continued, the Adani Group issued a detailed rebuttal, over 400 pages long, calling the Hindenburg report a “calculated attack against India”.
It claimed that it had complied with all local laws and had complied with necessary regulatory disclosures. He also indicated that the report was intended to allow Hindenburg “to obtain massive financial gains through illicit means at the expense of countless investors“.
Hindenburg, however, defended the report, saying the Adani Group “did not specifically respond to 62 of our 88 questions.”
What was the market reaction?
Adani Enterprises’ share sale on January 25 was met with little enthusiasm. Only 3% of its shares had been subscribed by the second day, as retail investors stayed away.
However, foreign institutional investors and corporate funds backed the group: on January 30, Abu Dhabi’s International Holding Company, backed by a member of the United Arab Emirates royal family, invested $400 million in the sale of the Actions.
In a last-minute push, Indian tycoons Sajjan Jindal and Sunil Mittal also signed up for the share sale in their personal capacities, Bloomberg reported.
Analyst Ambareesh Baliga told Reuters after the sale that the group had failed to meet its goal of “growing shareholding.”
The shares of the various companies in the group also continued to fall.
Whats Next?
Reports from Reuters and Bloomberg note that India’s central bank has asked the country’s lenders for details of their exposure to the group.
In his statement to Indian stocks, Adani said: “Our balance sheet is very healthy with strong cash flows and safe assets, and we have an impeccable record of servicing our debt.”
However, Edward Moya, an analyst at brokerage OANDA, told Reuters the withdrawal of the share sale was “worrying” because it was “supposed to show that high-net-worth investors still believe in the company.”
The equity arm of US investment bank Citigroup has stopped accepting Adani Group securities as collateral for margin loans, while Credit Suisse has stopped accepting the group’s bonds.
The ICRA unit of rating agency Moody’s has said that monitors the impact of recent developments on the shares of the Adani Group.
However, Vinayak Chatterjee, founder and manager of the Infravision Foundation, was optimistic, calling the current situation “a blip in the short term.”
“I have watched this group for a quarter of a century as an infrastructure expert. I see varied operating projects from ports, airports, cement to renewables that are strong, stable and generating healthy cash flow. They are completely safe from the ups and downs, from what happens in the stock market“he told the BBC.
However, Hemindra Hazari, an independent research analyst, said he was surprised that “so far we haven’t heard anything from the market regulator SEBI or the government.”
“They should have talked to calm investor nerves“he told the BBC.
The issue has also sparked a political dispute.
Adani is perceived as close to Indian Prime Minister Narendra Modi and has long faced accusations from opposition politicians for allegedly benefiting from his political ties. He denies these claims.
Opposition parties on Thursday demanded a discussion in Parliament over the risk to Indian investors of Adani Group shares falling. They have also called for an investigation into Hindenburg’s allegations.
Con information de Arunoday Mukharji.
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