Adani Group successfully trimmed debt, attracted substantial investments, and navigated legal challenges.
One of the significantly substantial corporate setbacks triggered by a short-selling entity might have turned out to be a serendipitous twist of fate for the billionaire Gautam Adani.
Approximately twelve months subsequent to the accusatory report from the US-based short-seller Hindenburg Research, which asserted fraud and “brazen” manipulation of stock prices within the Adani Group—a set of allegations vehemently refuted by the conglomerate—the Indian magnate has displayed enhanced resilience in certain aspects of business fundamentals.
His expansive empire spanning ports to power has successfully reduced its debt, alleviated commitments tied to founders’ shares, garnered support from newfound allies in regions ranging from the United States to the Middle East, secured noteworthy projects, and elevated engagement with investors and lenders. This strategic shift has facilitated the efficient transport of an increasing volume of air passengers and cargo containers. Additionally, the group is actively involved in constructing a new airport for Mumbai, India’s financial hub, and undertaking the redevelopment of the sprawling Dharavi slum in the city.
The repercussions stemming from Hindenburg’s damning report still persist. Despite a notable uptick of over $90 billion in Adani stocks from the nadir experienced last year, they remain approximately $60 billion below their pre-Hindenburg pinnacle. Concurrently, a majority of the conglomerate’s dollar-denominated bonds have managed to recover from their previous losses.
Critics, including those from opposing political factions, have persistently raised queries about an alleged proximity to Prime Minister Narendra Modi, coupled with a convoluted network of non-transparent offshore entities. The auditor for the conglomerate’s ports business stepped down in the previous year, adding to uncertainties surrounding its accounting practices. Adani Group representatives did not provide responses to requests for comments. The conglomerate has asserted its adherence to all legal requirements and adherence to accounting principles, while the billionaire entrepreneur has affirmed that his enterprises do not receive preferential treatment from the government.
Despite these concerns, numerous investors currently perceive the Adani business realm as resurging. A decisive Supreme Court ruling dismissing appeals for a special investigation, the infusion of new prominent investors, and financial support from a US agency have collectively provided reassurance to both institutional and retail investors, as stated by Chakri Lokapriya, managing director of RedStrawBerry LLP, an asset management company based in Chennai. The year following the short-seller’s critique “has proven to be advantageous for the Adani Group,” Lokapriya noted.
A significant portion of the conglomerate’s resilience is attributed to its extensive infrastructure portfolio, encompassing port terminals, power lines, airports, data centers, solar parks, and cement plants. This positions Adani at the focal point of India’s economic surge, which investors are eager to leverage. The South Asian nation stands out as a rare growth prospect in a global economy that is otherwise stagnant and actively seeking alternatives to China.
Here are various business metrics related to Adani’s business empire since the short-seller’s critique on Jan. 24 of the previous year:
Unencumbered and Rallying
Hindenburg’s report had a profound impact on Adani stocks, causing a significant downturn, eroding tens of billions in market value, and exposing the founders to potential margin calls on their pledged shares. Adani and his family prepaid $2.15 billion and substantially reduced their pledged holdings.
The group successfully attracted nearly $5 billion in investments, with a substantial portion coming from star investor Rajiv Jain’s GQG Partners LLC. This move defied the trend, as GQG Partners bought stakes in four Adani firms in March and has continued to invest additional funds since then.
The collective market value of the 10 listed Adani companies currently stands at approximately $175 billion. This represents a remarkable surge of around 112% from the record low of $82 billion in February of the preceding year, following the short-seller report. Notably, five of these companies have fully recovered from the losses incurred after the Hindenburg report.
The recent positive momentum in the stocks can be attributed to the Indian Supreme Court’s decision rejecting appeals for a federal probe or special investigation into Adani’s businesses. Additionally, a US-backed agency’s $553-million investment in the group’s port business in Sri Lanka has contributed to the upward trajectory.
Alok Churiwala, managing director at Churiwala Securities Pvt in Mumbai, pointed out, “The silver lining of the Hindenburg report was that investors, who were unable to get entry into Adani shares at a good price, got the opportunity to own these stocks.”
However, the Adani Group still needs to enhance analyst coverage, which is limited for most of its firms, except for the ports business and the recently acquired cement makers. Expanding the conglomerate’s public float would also be beneficial in mitigating outsized stock swings.
Credit Markets
The conglomerate reported a 3.5% decrease in its net debt, which amounted to $21.72 billion during the six months ending in September, as outlined in a presentation submitted to exchanges. The net debt-to-Ebitda ratio experienced a decline to 2.5 in September, marking a notable improvement from 3.3 in March. Back in August 2022, during the pre-Hindenburg phase characterized by fervent expansion, this ratio stood at 3.9, as communicated by the group.
As of January 19, a majority of Adani Group’s 15 dollar-denominated bonds were trading above 80 cents on the dollar, a benchmark typically indicative of non-distressed bonds. According to data compiled by Bloomberg, most of these bonds were trading higher than their levels observed in the previous year post the report.
In October, the group successfully refinanced a debt amounting to $3.5 billion, showcasing a heightened level of confidence among its creditors.
Building, Powering India
Adani, who ascended from a Mumbai-based diamond trading venture in the 1980s, successfully navigated the challenges posed by short sellers, largely attributed to his involvement in the development and operation of some of India’s most extensive infrastructure initiatives.
Bloomberg’s compiled data reveals that Adani oversees nearly half of all shipping containers in India, approximately one-third of the nation’s coal transportation, and holds roughly one-fifth of the private thermal power capacity.
The magnate strategically aligns his business pursuits with the nation-building priorities of Prime Minister Modi. Sabrina Jacobs, a client portfolio manager for fixed income at Pictet Asset Management in London, emphasized the government’s support for Adani’s company, citing its vital role in key economic sectors.
This connection also highlights a potential vulnerability for the conglomerate—political risk for Adani, whose trajectory closely mirrors Modi’s political rise. As India gears up for national elections this year, with Modi vying for a third term as Prime Minister, the political landscape poses challenges.
According to a December 2023 poll by ABP News-CVoter, the BJP-led National Democratic Alliance is expected to comfortably reclaim power in the upcoming summer elections.
A lingering concern revolves around the ongoing investigation by the local market regulator into the Adani Group’s potential violations of securities laws. The Indian Supreme Court issued a directive on Jan. 3, urging the regulator to conclude its inquiry within three months.
New Believers
Adani Enterprises Ltd.’s canceled $2.5 billion equity offering, a significant casualty of the Hindenburg report, did not result in the expansion of the investor base. Nevertheless, the group has experienced support from new prominent backers.
GQG’s Jain is notably optimistic, expressing a desire to become “one of the leading investors in Adani Group” within the next five years. Previous investors, including Qatar Investment Authority, TotalEnergies SE, and Abu Dhabi-based International Holding Co., have reinforced their positions in recent months.
The Adani family is undergoing transformations, establishing a Special Purpose Vehicle in Abu Dhabi’s international financial center, aligning with numerous other high-net-worth individuals aiming to safeguard their wealth.
In late February, Vinod Adani, Adani’s elder brother based in Dubai, resigned as a director from three companies associated with the family’s contentious coal mine in Australia. This move followed Hindenburg’s allegations that Vinod held a pivotal role in opaque offshore entities linked to the conglomerate.
Adani consistently encounters challenges to his reputation, but he resiliently navigates through them, continuing his business endeavors, as noted by Michael Kugelman, director of the South Asia Institute at the Wilson Centre in Washington.
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