Adani rout passes $80 billion as key share sale fails to lift mood

The crisis of confidence plaguing Gautam Adani is deepening, with the selloff in the Adani group shares triggered by Hindenburg Research’s fraud allegations rapidly turning into a meltdown despite the completion of a key share sale.

The declines accelerated in afternoon trading in Mumbai after Bloomberg reported Credit Suisse Group AG has stopped accepting bonds of Adani’s group of companies as collateral for margin loans to its private banking clients. Adani Enterprises Ltd., the flagship firm that completed a $2.5 billion follow-on stock sale Tuesday, lost as much as 30%. Adani group’s dollar bonds also pared earlier gains.

The turmoil indicates heightened concern over the debt load incurred by the conglomerate after a rapid expansion into industries from green energy to media, with short seller Hindenburg accusing it of inflating revenue. With the losses passing $92 billion across the group’s stocks, banks have asked for more stock collateral on a loan.

“Caution on Adani group stocks has increased after the news on action take by Credit Suisse,” Sameer Kalra, founder of Target Investing in Mumbai, said. “This can put put a financing hurdle for group’s further growth.”

The offering by Adani Enterprises was India’s largest follow-on share sale, and was fully subscribed on the final day, aided by a last-minute surge in demand from institutional investors. At least two of India’s biggest business families, including tycoons Sajjan Jindal and Sunil Mittal, are also said to have participated in it, in a sign of solidarity with Adani.

Interest from retail investors — who Adani was hoping to attract — was notably weak. The offering attracted overall bids for 1.12 times the amount of shares available, less than six out of seven jumbo-sized sales analyzed by Bloomberg.

Adani Enterprises sank to as low as 2,081.75 rupees on Wednesday, 33% below the lower end of the offer price range of 3,112-3,276 rupees. The firm is expected to announce the final price for its offering later Wednesday.

The worsening rout in Adani weighed on India’s broader benchmarks, with the Nifty 50 erasing budget-fueled gain of as much as 1.8%. Life Insurance Corporation of India, an Adani shareholder and an investor in the share sale, plunged more than 10%.

Although the bulk of the group’s dollar bonds climbed earlier in the day, some have since trimmed those gains. Only four out of the 15 US currency notes were still up on the day as of 2:10 p.m. in Mumbai.

What’s Next?

The storm engulfing Asia’s richest man has become a test case for India as well, with Hindenburg’s allegations raising questions over the country’s corporate governance, while Adani himself has called the report an attack on India itself. It has turned the conglomerate into a drag on the nation’s stock markets, an abrupt reversal from last year when Adani-linked stocks helped drive a world-beating rally.

Market watchers see the fight between Adani and Hindenburg continuing, after the two traded barbs earlier in the week. The Indian conglomerate has called Hindenburg’s report “bogus,” threatened legal action and said it was “a calculated securities fraud” in its 413-page rebuttal, which the short seller said ignored all its key allegations and was “obfuscated by nationalism.”