Adani Firms Pledge More Stake For SBI in 2023

Three Adani Group companies have pledged more shares for SBI, days after a scathing report by the US short-seller saw it lose more than $100 billion in market value. Adani Ports and Special Economic Zone (APSEZ), Adani Transmission Ltd, and Adani Green Energy have pledged shares in SBI. Up to 75,000,000 additional APSEZ shares were pledged, representing 1 percent of all SBICAP shares. In the case of Adani Green, the pledge of an additional 60 million shares raised the total to 1.06 percent. The pledge of an additional 13 million Adani Transmission shares raised the total to 0.55 percent.

Adani To Withdraw INR 20,000 Crore FPO

An unprecedented fall in the company’s shares prompted Gautam to call off his FPO even after it was fully subscribed. Adani said the decision was taken by the board to protect the interests of investors, and the money raised would be returned.
What was supposed to be a historic FPO for the Indian stock market had to be withdrawn. This further dented investor confidence and the company’s shares continued to bleed.

RBI Assesses Exposure Of Indian Banks To Adani Companies

The Reserve Bank of India (RBI) has launched an inquiry to assess the company’s dealings and its exposure to various Indian banks. The RBI has asked banks to share details of loans and other transactions that have taken place or were to take place between them and any Adani company.

Recently, the RBI has shrugged off investors’ concerns, saying the banking sector remains resilient and stable. The RBI states that the bank keeps vigil on the banking sector and individual banks to maintain financial stability. Credit Suisse and Citigroup stopped accepting the mentioned company securities as collateral for loans.
International giants, including brokerage Credit Suisse and the investment arm of Citigroup Inc, said they stopped accepting bonds of companies led by Adani as collateral for margin loans in a bid to tighten their grip on the allegations of the beleaguered Adani group.

Some credit rating agencies are said to have begun examining the risks associated with the Adani Group’s debt and creditworthiness. CRISIL said in a statement that it is monitoring the Adani Group and all remaining ratings of group entities are under constant surveillance. Fitch Ratings has clarified that it has no immediate impact on Adani’s credit rating.

The Adani Hindenburg Problem

• The Hindenburg is an institute specializing in “forensic financial research”. In other words, it looks for corruption or fraud in the business world, like accounting irregularities and bad players in management.
• Hindenburg, an American investment research firm, specializes in activist short selling.
Short selling is the opposite of normal stock market investing, where an investor buys a stock in the hope that its price will rise in the future. In a short sale, an investor holds a short position after expecting a decline in the stock’s value.
• In a short sale, an investor does not need to own shares of a particular company to sell them.

What is Hindenburg’s allegation against the Company?

Hindenburg Research claims the company was “engaged in stock manipulation and accounting fraud”. The Group has interests in sectors like ports and logistics, power generation, agribusiness, real estate, defense, solar, financial services, natural resources, and media.
• The group has engaged in brazen stock manipulation and accounting fraud worth ₹17.8 trillion (US$218 billion) over a decade, a research firm says.
• The Hindenburg report says the Adani family controlled offshore shell entities in tax havens from the Caribbean and Mauritius to the United Arab Emirates, which it claims were used to facilitate corruption, money laundering, and taxpayer theft while siphoning money from listed groups and Companies.

Hindenburg Research, an activist short-seller, published a report claiming that the Group is accused of stock manipulation. Hindenburg’s allegations include shell companies owned by close relatives of Adani that tried to manipulate share prices from tax havens like Mauritius.

Although the timing of the report is questionable, it was released just a day before the FPO on January 25. Its allegations have raised serious questions about corporate governance and raised concerns in investors, including the State Bank of India, and the largest insurance company in the country, LIC. Several media reports, citing sources, said India’s stock market regulator is looking into the claims made in the Hindenburg report. The Group played down the news and issued an explanation, but the market sentiment was largely negative and nearly halved the combined market value of the companies.

Exclusion From The Dow Jones Sustainability Indices

S&P Dow Jones said in a statement that it was removing Adani Enterprises from its Dow Jones Sustainability Indices effective February 7 following allegations of stock manipulation and accounting fraud. While the expulsion may seem unimportant, the move indicates a lack of confidence in the Adani Group by the international investment community, and its ripple effect can be seen in how foreign investors perceive investment opportunities in India.

Concerns about poor governance and corporate fraud in the country, which was touted as the world’s top investment destination at the World Economic Forum in Davos last month, may have contributed to market turmoil led by Adani Group shares.

Way forward for investors amid Adani Group stock chaos

In a post-budget interview with news organization News18, India’s finance minister expressed her confidence in India’s market regulators and assured that good governance practices are being followed. “India remains a well-managed and regulated financial market. Our regulators are very strict about certain corporate governance practices. We have learned so many lessons over the decades,” Sitharaman said. On February 2, the National Stock Exchange placed three Adani Group shares under Additional Supervisory Measures or ASM.

This move is to protect investors’ interests, as it requires investors to pay upfront 100% margin for all trades, including intraday trades. This ensures that short selling of shares does not drag down share prices. Seeking to regain investor confidence, Gautam Adani called off the fully subscribed FPO and has since clarified that the group’s balance sheet is “very healthy with strong cash flows and safe assets” and the group has a “flawless track record of servicing their debt”.

Adani Group rubbished Hindenburg’s report and said it was considering legal action against the firm, a move welcomed by the short seller. A source report on the Group entities making scheduled coupon payments on outstanding US dollar-denominated bonds and the company’s plans to issue a credit report. If investors see the chaos in Adani shares as an opportunity to buy more shares, it is best to wait. At this point, it is clear that the Hindenburg report has opened the floodgates for the Group to deal with its balance sheet and scuttle the allegations in whichever way it can.

Edited by Prakriti Arora