Indian regulators will study the short-seller report, which could help investigate overseas funds’ holdings in Adani, the media said. LIC, India’s largest life insurance company, will spend about 3 billion rupees to participate in Adani’s secondary offering of nearly US$2.5 billion. However, the company’s stock price has fallen far below the low end of the issue price after the sharp drop on Friday, and the prospect of the issue is worrisome. Hedge fund tycoon Ackman is very short, saying that the short report is highly credible.
After being denounced by the short-selling agency Hindenburg as the biggest scam in corporate history, “shameless” stock manipulation, and financial fraud, the company of India’s richest man, Gautam Adani, faced a crisis of trust and was “bloodbathed” by stock market investors.
On Friday, 27th local time in India, Adani Enterprises, the flagship listed company of Adani Group, the group founded by Gautam Adani, closed down 18.5%, the biggest drop since 2017.
Other listed companies under the Adani Group also fell sharply. Among them, Adani Green Energy Ltd and Adani Total Gas both closed down 20% and closed at the limit. According to media statistics, the stock turnover of Adani’s companies is at least three times the average level in the past three months.
India’s national stock market was also hit, with the India Nifty 50 index, which includes Adani Enterprises, falling to its lowest level since October 2021.
On Thursday, Adani Group officially responded that Hindenburg lacked factual basis, maliciously published reports in an attempt to mislead investors, and considered taking legal action against “false allegations”. Still, the stock market remains jittery. According to media estimates, within two days after the release of the Hinderburg report, Adani’s listed companies have managed more than US$51 billion within two days.
The founder of Mumbai-based equity research firm Target Investing said Hinderburg’s report could become a major legal issue because it damages Adani’s reputation.
The share price is far below the issue price, the low-end Adani company has a record of nearly 2.5 billion US dollars, and the prospect of the secondary offering is worrying
The media quoted people familiar with the matter as saying that Adani Group is worried, but is currently preparing to wait for the time being, because the group’s stock sale will continue until January 31.
Some media pointed out that Adani Enterprises’ share price closed at 2,761 Indian rupees on Friday, which is about 10% lower than the low end of the company’s recent secondary stock price range. And as bidding began on Friday, only about 1 percent of the stock offering was subscribed.
These signs cast doubt on the success of Adani’s record-breaking $2.45 billion secondary offering.
Narendra Solank, head of fundamental research at Indian brokerage Anand Rathi, said:
“This wave of headlines over the past few days has clearly impacted share sales, and you can see that clearly in the level of subscription, especially the low participation of retail investors.”
According to media sources, India’s financial market regulator has increased its scrutiny of Adani Group’s transactions in the past year. When conducting a preliminary investigation of investors in the group’s overseas portfolio, it will take Hindenburg’s short report into consideration and will study The report because it may help regulators investigate Adani Group’s offshore fund holdings.
In July last year, regulators launched an investigation into relatively unknown offshore funds outside Mauritius that held large stakes in Adani Group’s listed companies. This may raise concerns about stock manipulation by Adani.
The Securities and Exchange Commission of India, known as SEBI, has increasingly scrutinized all deals by Adani Group for listed companies, the sources said. For example, Adani disclosed in May 2022 that when acquiring the shares of Indian companies Ambuja Cements Ltd and ACC Ltd held by the Swiss company Holcim Ltd, an offshore special purpose vehicle (SPV) was used, and regulators are investigating this SPV.
Regulators had previously found that as many as 17 overseas offshore entities were involved in financing the acquisitions. The regulator sought Adani to clarify these entities in its 2022 filing for approval and is currently investigating Adani’s response.
Adani has domestic ‘reinforcements’, bears have Ackman solidarity
Wall Street has mentioned that Adani has a close personal relationship with Modi, who was elected Prime Minister of India in 2014. Before the 2014 general election, because Modi’s Bharatiya Janata Party had a higher probability of winning the election, the stock prices of his companies began to soar. Wealth increased by nearly $4.5 billion, more than any other Indian billionaire on the list.
Given the Adani Group’s complex network of contacts in Indian politics, it remains to be seen whether Hindenburg will be as successful this time around as it was at electric truck company Nikola. At least for now, Adani has domestic “reinforcements” to take action.
Documents submitted to regulators disclosed that Life Insurance Corp. of India (LIC), India’s largest life insurance company and a state-owned enterprise, will spend about 3 billion Indian rupees (about 37 million U.S. dollars) as an anchor investor to participate in nearly 25 billion new shares issued.
Currently LIC holds 4.23% of the shares of Adani Enterprises, and after the completion of the above investment, the shareholding ratio will increase. The media believes that LIC’s actions are a vote of confidence in Adani himself and his group.
In addition to LIC, there are 32 institutional investors in the secondary offering of Adani Enterprises as anchor investors, including Abu Dhabi Investment Authority, a sovereign wealth fund in Abu Dhabi, UAE, and another company located in Abu Dhabi-based investment fund Al Mehwar Commercial Investments LLC.
Bearish Hinderburg has supporters, though. On Thursday night Eastern time, Bill Ackman, a hedge fund leader who had aggressively shorted Herbalife, tweeted,
Adani responded to Hinderburg in the same way Herbalife responded to our original 350-page report. Herbalife is still a pyramid scheme. I found Hinderburg’s report to be credible and well researched. Adani’s response is on point. Those who buy (Adani) are responsible for themselves.
Hindenburg said on Thursday that Adani Group’s response “did not answer any of the substantive questions we raised.” There have been media reports that Adani Group plans to respond in more detail to the “false” short-selling report this Friday. There was no further response from Adani on Friday.
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