A New York short-seller has managed to torpedo India’s most prestigious stock sale without betting a single dollar on any Indian market, deflating the aura around its sponsoring tycoon. This is the power of limitless money. Hindenburg Research has given us a masterclass in financial globalization in winning the first round of its fight against Gautam Adani. Late on Wednesday, Adani Enterprises Ltd informed the stock exchanges that it has decided not to go ahead with the $2.4 billion public offer that ended the previous day. The ninth-hour success of AEL’s fund-raising plan, with the help of the family offices of the Abu Dhabi royals and other Indian billionaires, could not stop the stock from plunging 28% the next day. Therefore, going ahead with the issue “would not be ethically correct”, as Adani said. Membership fees are being refunded. “For me, my investor’s interest is paramount,” the 60-year-old group chairman said in a video. Know the shareholders.
When Hindenburg published his report last week, accusing Adani of “the biggest fraud in corporate history” and revealing that he bet against the group through US-traded bonds and non-Indian-traded derivatives The Indian infrastructure group grew rapidly. For denying the timing of allegations of stock-price manipulation and accounting fraud as baseless and failing the nation’s largest follow-on public offering. The FPO became the referral event to test Hindenburg’s mettle against the might of the wealthy industrialist.
Adani was till recently a centi billionaire. His proximity to Prime Minister Narendra Modi [has long been spoken of socially], although the businessman says he did not seek or receive any political favors. The amount of support he could expect from financial institutions and other large investors was never in doubt, and 35% of the offer retailed for less than $1 billion. How hard could it be for such a powerful magnate to raise $1 billion and squeeze out a troubled short seller in New York?
But Adani’s defense was broken. Subjecting investors to information overload of a 413-page rebuttal didn’t work. Nor was the invocation of nationalism by the group’s chief financial officer, who equated the Hindenburg attack to one of colonialism’s lowest points: the 1919 massacre by British troops of Indian civilians in a Punjab park. The stock didn’t hold, but Adani didn’t back down either: keeping the offer open for too long or cutting the price risked embarrassment. So it apparently penetrated through it. Retail investors took only 12% of the shares reserved for them.
A barely successful FPO had the opposite of a calming effect. Especially after Bloomberg News broke the news that Credit Suisse has stopped accepting bonds of Adani firms as collateral for margin loans to its private banking clients. Until recently, some similar securities were valued by the bank at 75% of the loan value. Now he was given zero rating. Once again, this affected the domestic equity market: AEL ended the day down 28%. And then pulled the FPO.
As a result, Adani’s highly leveraged empire lost access to $2.4 billion in equity. This pushed some of their dollar bonds into distress territory, trading below 70 cents on the dollar. Any rating downgrade would be catastrophic. Meanwhile, the Adani vibration will continue to travel back and forth between India and the rest of the world. Abu Dhabi’s International Holding Company has pumped money into the group in the past, and according to the Financial Times, the meteoric rise of a little-known company involved in fish farms, food and real estate has closely mirrored Adani’s flagship. , Will the correlation be on the downside as well?
Even for Indians who do not hold Adani shares, the health of their portfolios is a concern. With credit demand rising in India’s economy and lending rates firming faster than deposit rates, local banks have been exceptional performers. The Adani saga may reverse this. A Hong Kong-based banker told me that foreign hedge funds are already calling the trading desks of Wall Street firms asking how they can undercut Indian lenders. Financial globalization cuts both ways. In a global cheap-money era, it has created billionaires and puffed up nationalistic pride. This perhaps led the regulator to think it could reduce its oversight – too much money was coming in for it to worry about its quality.
As I wrote in September, it is the allegation of long bets by Mauritius-based briefcase funds on Adani Group shares that needs investigation by the Securities and Exchange Board of India, the regulator. Even now, I suspect, there may be a knee-jerk reaction to finding short positions and blocking. Or, at least, their competent middlemen, who are more likely to be local franchisees. It would be wrong to learn from Hindenburg’s masterclass.
Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia.
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