Hindenburg cuts India’s Adani, citing debt, accounting concerns; stock drop

  • The US-based short seller says it is concerned about Adani’s debt, finances
  • Adani Group denies the allegations and calls them baseless
  • In the past, Adani Group has dismissed concerns about high debt
  • Shares of Adani group companies fell after the report

BENGALURU, Jan 25 (Reuters) – Hindenburg Research said it was shorting India’s Adani Group, accusing the conglomerate of misusing offshore tax havens and raising concerns about high debt that eroded $11 billion of investor wealth on Wednesday.

The group, which is led by Gautam Adani, the world’s third-richest person according to Forbes, dismissed the US short seller’s claims as baseless, saying it was set to damage its reputation ahead of a major stock offering.

The group’s flagship firm, Adani Enterprises ( ADEL.NS ), will launch the country’s largest public secondary offering on Jan. 27, aiming to raise $2.5 billion to finance capital expenditures and pay down some debt.

Hindenburg, known for shorting electric truck maker Nikola Corp ( NKLA.O ) and Twitter, said it held short positions in Adani companies through U.S.-traded bonds and non-Indian-traded derivatives.

His scathing investigative report questioned how the Adani Group used offshore entities in offshore tax havens such as Mauritius and the Caribbean, adding that some offshore funds and shell companies linked to the Adani Group “secretly” held shares in Adani-registered firms.

He also said key Adani-listed companies have “significant debt”, which has put the entire group on “uncertain financial footing”, and said shares in seven Adani-listed companies are down 85% on a fundamental basis because of this. which he called “extremely high marks”.

Adani Group’s chief financial officer, Jugeshinder Singh, said in a statement that the company was shocked by the report, calling it a “malicious combination of selective misinformation and outdated, baseless and discredited claims”.

“The group has always complied with all laws,” the company said, without commenting on specific allegations made by Hindenburg.

“The timing of the publication of the report clearly betrays a brazen, bad faith intention to undermine the reputation of the Adani Group with the primary objective of damaging the forthcoming follow-on IPO of Adani Enterprises,” it added.

Shares in Adani Transmission ( ADAI.NS ) fell 9 percent, Adani Ports And Special Economic Zone ( APSE.NS ) fell 6.3 percent and Adani Enterprises ended down 1.5 percent. In total, the group’s seven listed companies lost $10.73 billion in market capitalization.

In bond markets, U.S. dollar-denominated bonds issued by Adani Green Energy ( ADNA.NS ) fell nearly 15 cents to just under 80 cents on the dollar, Tradeweb data showed, while international bonds issued by Adani Ports And Special Economic Zone, Adani Transmission and Adani Electricity Mumbai saw similar declines.

The report coincided with bidding for a secondary sale of Adani shares by leading investors on Wednesday, with the company noting the participation of Maybank Securities and the Abu Dhabi Investment Authority in a filing to the exchange among others.

The investigative report, Hindenburg said, was based on an investigation over two years that included interviews with dozens of individuals, including former Adani Group executives, as well as a review of documents.

India’s capital markets regulator, the Securities and Exchange Board of India, did not immediately respond to a request for comment.

Adani has repeatedly dismissed debt concerns. Singh told the media on January 21, “No one has raised any concern with us about the debt. No investor has done that.”

Reuters Graphics
Reuters Graphics

The Hindenburg report said five of the seven key Adani-listed companies reported current ratios – a measure of liquid assets minus short-term liabilities – below 1. This, the short seller said, suggested “increased short-term liquidity risk”.

Adani Group’s total gross debt in the financial year ended March 31, 2022, rose 40% to 2.2 trillion rupees.

Refinitiv data shows that Adani Group’s seven key listed companies have debt exceeding equity, with Adani Green Energy Ltd’s ( ADNA.NS ) debt exceeding equity by more than 2,000%.

CreditSights, part of Fitch Group, described the group last September as “overleveraged”. While the report later corrected some calculation errors, CreditSights said it remained concerned about Adani Group’s leverage.

Hindenburg also said he was concerned that much of the equity held by promoters or key shareholders in Adani Group listed companies was being pledged for loans.

“Pledged equity is an inherently volatile source of collateral for lending,” the report said.

Adani Group last year bought cement firms ACC ( ACC.NS ) and Ambuja Cements ( ABUJ.NS ) from Switzerland’s Holcim ( HOLN.S ) for $10.5 billion. Days later, it pledged stakes in the two firms, worth about $12.5 billion at the time, to banks in a nondisclosure agreement that prevents it from offloading the shares until creditors agree to pay off the debts.

ACC and Ambuja shares fell more than 7% on Wednesday.

Reporting by Chris Thomas, Aditya Kalra and Mrinmai Dey; Additional reporting by Miyoung Kim; Editing by Edwina Gibbs, Louise Havens, Kirsten Donovan

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