Adani Rout Gathers Speed on Fresh Signs of Distrust

Stocks and bonds of Adani Group companies crashed to new lows Thursday after the Indian conglomerate canceled an equity offering it had pursued as a vote of confidence in the wake of accusations of widespread fraud by a U.S. short-seller.

The $2.5 billion secondary offering scrapped by Adani Enterprises (ADANIENT.NS) shortly after its completion prompted questions that echoed criticism by Hindenburg Research of Adani's corporate governance and the transparency of India's capital markets.

The cancellation came as two Western banks stopped accepting Adani bonds as margin loan collateral, while a prominent UK politician resigned as a director of a London firm that Hindenburg said participated in Adani's alleged schemes to manipulate share prices. Adani Enterprises shares plunged 27% Thursday on the heels of Wednesday's 28% drop.

A subsidiary of the London firm, Elara Capital, was listed as one of the 10 bookrunners for the stock sale after Adani's allies in India's business community and among its strategic Middle East investors ensured it was fully subscribed in a last-day push. U.S. hedge fund manager Bill Ackman, who has supported Hindenburg's claims, said on Twitter he "would not find it surprising if the Adani offering was rigged with affiliated buyers."

Hindenburg's report quoted two unidentified former traders for Mauritius-based funds run by Elara in alleging Adani used them to conceal the extent of the family's ownership of listed shares in its companies and to manipulate their share prices. Adani has denied Hindenburg's allegations, as well as any affiliation with Elara. Elara has yet to explain why 99% of its $3 billion Elara India Opportunities Fund based in Mauritius is invested in Adani companies.

Gautam Adani, the conglomerate's CEO, said in a video address to investors that his Adani Enterprises flagship canceled the offering "to insulate the investors from potential losses." Adani's own losses, meanwhile, totaled $12.5 billion Wednesday, shrinking his net worth to $72.1 billion, according to Bloomberg's Billionaire Index. Adani, a key supporter of Indian Prime Minister Narendra Modi, fell to 12th place in the global wealth ranking and second in India behind rival tycoon Mukesh Ambani. Adani's losses have cast a pall over India's stock market, pushing it below France to sixth largest by market value globally.

"Our balance sheet is healthy and assets robust," Adani said in his address to investors. "Our EBITDA levels and cash flows have been very strong, and we have an impeccable track record of fulfilling our debt obligations."

Meanwhile, Adani Group's gross debt increased 40% in its most recent fiscal year as the conglomerate expanded beyond its port infrastructure and coal power roots into industries like cement, roads, data centers, and renewables, prompting cautionary commentary from some analysts.

While Adani Enterprise shares are now down 54% since Hindenburg's Jan. 24 report, that's only returned the price to what was its all-time high in May 2021. At that point, the stock had already appreciated 11-fold in the course of a year. Hindenburg cited the rapid gains in Adani share prices over recent years to support its claims of market manipulation. In November, Bloomberg called the gains—as much as 2,000% over four years for some of Adani's stocks—"eyebrow-raising."

The share sale, planned to broaden the company's shareholder base and analyst coverage, ended up framed as a referendum on Adani's governance and Hindenburg's claims. But the offering's price range was more than 30% above Adani's share price after Wednesday's plunge. The cancellation leaves open the possibility that the key Middle East investors and Indian business magnates who subscribed to the offering just ahead of the deadline knew their votes of confidence were refundable.

If Adani's allies come to his rescue again, their support may need to be more overt than the state-owned insurance company's participation in the abortive offering, or the heavy lending in recent years to Adani Group companies by the State Bank of India, the country's largest bank and one in which the government holds a majority stake.

Adani and Modi have promoted what some in India call the "Gujarat development model," named after both men's home state. The model featured exclusive and lucrative infrastructure development contracts for Adani, who in turn provided Modi with political support and India's economy with vital infrastructure improvements. India has grown rapidly in recent years after decades of stagnation under a heavy-handed centralized bureaucracy derisively labeled the License Raj.

In a recent column for an Indian business magazine, one economist wrote that "Japan, not China, should be India’s role model. The Japanese model is to bring together political leaders and big business to chart a national strategy for continued growth."

But close ties between governments and favored tycoons can bring their own problems, the author is discovering. He is Meghnad Desai, a member of the British House of Lords and an Elara non-executive director who told the Financial Times he has contacted financial regulators in Mauritius to seek more information on Hindenburg's allegations regarding his firm.

"If it is correct that Elara was used as a vehicle indirectly by the Adanis then we have to worry about that," the newspaper quoted Desai as saying. "If this is not clarified by the [Indian] government they are going to have a serious problem attracting foreign capital."