Adani’s financing safety-net rests on Indian banks

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Indian billionaire Gautam Adani addresses delegates during the Bengal Global Business Summit in Kolkata
Indian billionaire Gautam Adani is seen on a screen as he addresses delegates during the Bengal Global Business Summit in Kolkata, India April 20, 2022. REUTERS/Rupak De Chowdhuri

HONG KONG/MUMBAI, Jan 30 (Reuters Breakingviews) - Gautam Adani’s financing options are narrowing fast. Investors wiped $48 billion off the Indian tycoon’s listed companies in just two days last week; his flagship Adani Enterprises (ADEL.NS) lost 19% of its value on Friday alone. While the nationally important ports-to-power-to-roads group should be able to manage its interest bill, the selloff blows apart Adani’s plans to tap global capital markets. That leaves it dependent on a safety net provided by Indian banks.

The tycoon has limited options to stem the share rout triggered by a critical research report. The best defence against short sellers is typically to buy stock, but Adani’s tight shareholding structure is one reason why big funds have long viewed it with suspicion despite the group’s near 6% weighting in the MSCI India index. Those concerns exploded after Hindenburg Research last week declared the Indian group was making extensive use of tax havens and “pulling the largest con in corporate history” – allegations Adani dismissed as “misinformation” and “stale, baseless and discredited”. A 413-page response to the attack published Sunday may not reassure. Adani dismissed three quarters of Hindenburg’s 88 questions as relating to previously disclosed matters, and said most of the rest relate to public shareholders for which it isn’t required to have information.

Another way to counter the selloff would be to bring in a strategic investor. But any outside buyer would need to be able to withstand the intense scrutiny of backing Adani companies that are still trading at triple-digit multiples of earnings, and whose share registers are subject to heightened examination by India’s securities regulator. In the past, Life Insurance Corporation (LIFI.NS) has emerged as a buyer or lender of last resort for New Delhi’s cast-offs and for private companies that it is already invested in. Having floated last year, though, LIC would risk a public backlash if it increased its Adani investments.

The industrialist has in recent years relied on capital markets and private credit from funds including Apollo Global Management (APO.N) to finance the growth of his empire, including strategic investments from France’s TotalEnergies (TTEF.PA) and Abu Dhabi’s IHC (IHC.AD). The Adani group’s unadjusted debt, around $27 billion at current exchange rates, rose about 40% in the most recent full financial year. The tycoon had planned to raise $5 billion from equity markets in 2023 and to secure $3 billion in the first three months. He was also planning to refinance loans on his multi-billion cement deals, which were bankrolled by foreign lenders.

Indian banks have the capacity to step up. Less than 40% of debt at the top five Adani companies is owed to domestic lenders and accounts for less than 1% of the country’s total loans, according to CLSA research. But bosses of state financial institutions face intense scrutiny from investigative agencies when high-profile loans turn bad. With a din around Adani, it would be rational for banks to hold back too.

What State Bank of India (SBI.NS) and others do next will therefore reveal the extent of state support for Adani. Lending more to the group would protect the capital that banks already have at risk in projects under construction. It would also signal that New Delhi is ready to throw some sovereign weight behind a tycoon who is building critical infrastructure and is in the eye of a storm.

Shares of the Indian group's companies have plummeted

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Adani group on the evening of Jan. 29 published a 413-page response to a Hindenburg Research report that sparked a sharp selloff in its shares. The Indian group noted that over three quarters of the 88 questions Hindenburg posed relate to previously disclosed matters, and that the bulk of the remaining questions relate to public shareholders, for which listed companies are not required to have information. Adani added the short attack was a calculated attack on India and its growth ambition.

State Bank of India said its exposure to the Adani group was well below the limits allowed by the country’s banking regulator and that the conglomerate’s ability to service its debt would not be a challenge, Reuters reported on Jan. 27, citing CNBC TV18. On the same day, index provider MSCI said it welcomed feedback from market participants on Adani and associated securities.

Shares of Gautam Adani’s listed companies have lost a combined $48 billion in market capitalisation since Jan. 25. U.S.-listed bonds issued by Adani firms also fell after Hindenburg Research alleged the group was “pulling the largest con in corporate history” including “brazen stock manipulation and accounting fraud”.

Adani group said on Jan. 25 it was shocked Hindenburg had published the report without making any attempt to contact the company and dismissed it as a “malicious combination of selective misinformation and stale, baseless and discredited allegations that have been tested and rejected by India’s highest courts”.

Column by Una Galani in Hong Kong and Shritama Bose in Mumbai. Editing by Peter Thal Larsen and Thomas Shum

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