MUMBAI: After publishing an explosive report on Gautam Adani’s opportunistic conglomerate two months ago, short seller Hindenburg Research has caused the Indian billionaire’s empire to feel humiliated and force itself to rethink its goals.
According to insiders acquainted with the inner workings of the company, Hindenburg’s charges of significant, years-long corporate fraud at the Adani group have caused a loss of market value of roughly $125 billion since January, prompting the tycoon to curtail plans to expand into other industries.
The group, which amassed one of India’s largest debt loads to fund new areas of growth, is retreating from petrochemicals and is unlikely to move forward with a planned $4 billion greenfield coal-to-polyvinyl chloride project in Mundra, western India, according to the people, who asked not to be named because the conversations are private.
According to the sources, it is also scaling back its plans to invest more heavily in road, steel, and aluminium projects.
Adani, who has been closely linked to Indian Prime Minister Narendra Modi’s efforts to create the country, will instead return his attention to his primary projects. According to the population, these consist of power production, ports, and more recent green energy efforts.
The billionaire will conduct himself in a completely different manner even in these key areas. Adani aims to refrain from using this high-risk financing moving ahead after selling family shares to pre-pay $2.15 billion in margin-linked, share-backed financing that was borrowed to finance a number of acquisitions, the sources said.
To raise money in a way that shields the empire from turbulent market fluctuations, they added, Adani will adhere to fund-raising strategies like private bond placements and equity stake sales to specific investors, like its share sale to Rajiv Jain’s GQG Partners.
It represents a sharp contrast to 2022, when Adani’s prominence and riches skyrocketed. The former diamond merchant once held the title of Asia’s richest man, and his investments went far beyond the usual heavy infrastructure bets to include media, women’s cricket, and data centres.
It is now believed that the answer to regaining confidence is to put debt-driven diversification on hold. According to those familiar with Adani’s plans, the group, which recently acquired a controlling interest in TV station New Delhi Television Ltd as the first step in creating what the tycoon once referred to as “the Financial Times or Al-Jazeera of India,” is now unlikely to make additional purchases in the media sector.
Michael Kugelman, director of the South Asia Initiative at the Washington-based Wilson Center, stated that there is “strong reason to assume the firm will draw back a bit in order to focus on damage control and other shareholder and wider investor concerns.” “Reputational factors are essential.”
Hindenburg’s accusations have been been refuted by Adani, who refers to them as an assault on India. A request for comment from group representatives was not answered. In response to a recent story in the local media that the project has stalled, the Adani group said last week that it anticipates funding for the greenfield coal-to-polyvinyl chloride project to be arranged in the next six months.
The internal assessment comes after a number of firefighting actions taken by the Adani company to boost investor confidence. In the days following the publication of the Hindenburg report, the conglomerate halted a share offering before going on to prepay $2.15 billion in debt in an effort to halt a massive stock selloff in its Mumbai-listed businesses. To refute the charges of the short seller, it organised a six-city roadshow and sold shares in four companies to renowned emerging-markets investor GQG Partners.
The turbulence has scared several of its key partners away, so the withdrawal was not entirely voluntary. TotalEnergies SE, a Paris-based company, has already postponed a joint venture project involving green hydrogen with the organisation. In February, Adani also chose against competing for a stake in the government-backed electricity trader PTC India Ltd., a highly symbolic withdrawal considering how invested the company has been in the construction of India’s electrical infrastructure.
Adani has been tying his companies to Modi’s development ambitions for years. Following Hindenburg’s investigation, the billionaire has come under increased political pressure due to widespread claims of crony capitalism stemming from the notion that he has a close relationship with the prime minister of India.
The opposition Congress Party has claimed that Adani benefited from special treatment from the government as a result of the short seller’s allegations, making the tycoon’s connection with Modi and the government fair game. Rahul Gandhi, the leader of the Congress, was abruptly fired from his position as an MP last week, which he claims was punishment for questioning Adani’s connections to Modi.
Gandhi, a member of India’s most illustrious political family, was expelled from parliament on Friday after being found guilty by a local jury of insulting Modi in a 2019 election speech. Gandhi must bear the costs, according to the Bharatiya Janata Party, which is in power under Modi.
Adani, in contrast, has continuously refuted allegations that he was given preferential treatment because of his connection to the prime minister.
Temporary recollections
According to the persons, Adani officials have been often flying from the company’s headquarters in Ahmedabad to Dubai, London, and New York in an effort to persuade investors that the house is in it by personally meeting with roughly 100 of them each month.
According to the sources, Adani Group would make some sharp trade-offs in order to reduce its net debt to earnings before interest, taxes, depreciation, and amortisation (EBITDA) from its present level of 3.1 to as low as 2.5.
A percent of India’s cargo flow passes through Adani’s ports, and the company has grown abroad, from Israel to Sri Lanka. Denise Wong, an analyst at Bloomberg Intelligence, wrote in a report earlier this month that Adani’s plans to reduce capital spending by half and prepay 50 billion rupees ($608 million) of debt to allay refinancing worries “will impede the company’s ability to boost earnings growth through infrastructure expansion and M&A.”
It will be interesting to observe if curbing its aspirations has any effect. As India’s Economic Times reported that the Adani group is looking to renegotiate the conditions of $4 billion in loans, the stock price of the conglomerate fell on Tuesday, reviving concerns about its capacity to pay off debt and access to capital. A report by business news website The Ken that said regulatory records showed banks have not yet released a significant amount of Gautam Adani’s shares worsened the losses. The group disputed both claims.
Credit rating agencies are constantly monitoring Adani’s moves. India’s Supreme Court has established a panel to look into Hindenburg’s allegations, and earlier this month S&P Global Ratings cited a litany of reasons why the group’s ratings on Adani units have downside risks, from the possibility it faces limited access to funding to the possibility it’s the target of a probe that uncovers “serious wrongdoing.”
Abhishek Jain, head of research at Mumbai-based brokerage Arihant Capital Markets Ltd, which has advised clients on Adani-related equities, noted that sentiment is against Adani in addition to sharply rising refinancing costs and that “the risk premium will be certainly higher.” “The group is doing everything they can to regain the investors’ confidence.”
