New Delhi: Shares in Adani Enterprises rebounded strongly on Friday, February 3, after the worst-ever intraday fall. However, the seven listed firms of the Adani Group have still lost about half their market value since the US short-seller Hindenburg Research last week accused the conglomerate of stock manipulation and unsustainable debt.
At 10:41 am on Friday, Adani Enterprises crashed 35% at Rs 1,017.45 apiece on the NSE – its worst-ever intraday fall. The stock has wiped out 76% of its value since it hit a peak of Rs 4,190 hit in December 2022, Moneycontrol reported. At its peak in December, the Adani Enterprises stock had surged 1700% in two years.
Adani Enterprises was up 1.25% to close at 1,584.20 apiece on the BSE on Friday. Moneycontrol reported that the stock broke into the green after rating agencies showed confidence in Adani’s capability of repaying debt.
Except for Adani Enterprises and Adani Ports, which gained 7.98% on the BSE, all other stocks of the company closed in the red. Three Adani Group stocks – Adani Total Gas, Adani Green Energy and Adani Transmission – hit their respective lower circuits for two days in a row.
A lower circuit means the lowest tradable price for a stock in a particular trading session. Circuit breakers cap how much the value of a stock can fall in a single trading session. When a stock hits the upper or lower circuit, all trading related to that stock stops. And when a stock hits the lower circuit, there will be only sellers and no buyers.
Therefore, circuit breakers are triggered to prevent markets from crashing due to a panic-induced sale of stocks.
Shares of Adani Power fell 5%, Adani Transmission (10%), Adani Total Gas (5%), Adani Green Energy (10%) and Adani Wilmar (4.99%) on Friday on the BSE.
The National Stock Exchange has put Adani Enterprises, Adani Ports, and Ambuja Cement under the additional surveillance measure framework starting on February 3, for the short-term (five days/15 days/ 30 days), Mint reported. This would mean that intraday trading will also require a 100% upfront margin and will likely curb a lot of speculation and short selling. (Upfront margin is the minimum amount required to take a trade. It is collected on an advanced basis on trade day.)
Meanwhile, Adani Enterprises will be removed from the Dow Jones Sustainability Indices before February 7. On this matter, Trinamool Congress MP Mahua Moitra questioned why the National Stock Exchange (NSE) was yet to reevaluate the index membership of Adani stocks.
S&P Dow Jones removes Adani Enterprises from Dow Jones indices due to charges of stock manipulation & accounting fraud.
Why is @NSEIndia not reevaluating index membership of Adani stocks when international ones are? pic.twitter.com/nnL3WK1esM
— Mahua Moitra (@MahuaMoitra) February 3, 2023
The opposition parties held protests in both Lok Sabha and Rajya Sabha to demand a discussion on the situation arising out of the allegations against the Adani group and the fall in its stocks in which several public sector banks and Life Insurance Corporation hold stakes. Voices were raised for a time-bound investigation by a Supreme Court-appointed panel into the allegations against the corporate house.
What followed after the Hindenburg Research report
Since January 24, when US-based Hindenburg Research released a report alleging the company of stock manipulation and accounting fraud, the Adani Group’s market capitalisation fell below Rs 10 lakh crore, erasing 50% of its value.
The company had denied the allegations and termed the report as “baseless” and “malicious”, and even called it to be a “calculated attack on India”.
The Reserve Bank of India, Indian regulator SEBI and even the Australian Securities and Investments Commission are looking into the matter.
Moitra also said that lawyer Cyril Shroff should recuse himself from SEBI’s committee on corporate governance and insider trading, if it’s investigating the Adani issue, as his daughter is married to Adani’s son.
Greatest respect for ace lawyer Cyril Shroff but his daughter is married to Gautam Adani’s son. Shroff serves on SEBI’s Committee on Corporate Governance & Insider Trading. If at all @SEBI_India is examining Adani issue, Shroff should recuse himself.
Perceptions are Reality.
— Mahua Moitra (@MahuaMoitra) February 3, 2023
Several voices were raised on this matter.
The CEO of Adani Ports, Karan Adani’s father in law #CyrilShroff is a key member of #SEBI committee. Most surprisingly he also gives legal advices to #Adani group.
The whole system is messed up & spoiled. Kudos Modi for the mess 🙏 pic.twitter.com/4bYH2w9XXF
— Nayini Anurag Reddy (@NAR_Handle) February 3, 2023
However, SEBI has a limited role in the ongoing Adani investigation, J.N. Gupta, founder, Stakeholder Empowerment Services, a proxy advisory firm, told Business Today.
“In this particular case, if there is anything in the Hindenburg report, which is not in public domain and which Adani should have disclosed and has not disclosed, then action should be taken in accordance with the regulatory framework,” he said.
He added that the capital markets regulator could look into how short positions were created in the Indian market and whether those were created within the regulatory framework or outside of it.
Reuters reported that SEBI has increased scrutiny of deals by the Adani Group over the past year and it has been increasingly asking for disclosures that it ordinarily does not.
In an interview with India Today, Gautam Adani on Friday denied that his rise to become Asia’s richest man – a title he has lost in a phenomenal stock rout – was due to Prime Minister Narendra Modi, as shares in his conglomerate slumped again. The Adani Group has fended off allegations that the billionaire’s close relationship with the prime minister has helped him win business and avoid proper oversight.
The Hindenburg report came a few days before the company was going to raise Rs 20,000 crore via a follow-on public offer, which despite being fully subscribed was called off by Gautam Adani on February 1.
On February 2, shares of Adani Enterprises plunged by nearly 23%, trading at its lowest since March 2022.
Separately, Adani Group company’s bonds fell down to distressed levels. Bonds issued by Adani Green Energy and Adani Ports & Special Economic Zone received the maximum beating in the global markets, Mint reported.
Securities are classified as distressed when trading with a yield to maturity of greater than 1,000 basis points, or otherwise 10% above the risk-free rate of return. High-yield bonds face higher default rates and more volatility.
The newspaper reported that some bonds of Adani Ports & Special Economic zone and Adani Green Energy yield more than 30% in global secondary markets – which is much higher than the average investment grade yield of 4.96% and junk bond yield of 8.14%.
A source with direct knowledge of the Adani Group’s thinking told Reuters that coupon payments for bonds will “continue as normal,” and that these had nothing to do with share price falls or the group’s current challenges.
Meanwhile, sources privy to the matter told CNBC-TV18 that Life Insurance Corporation of India has not sold any shares of the Adani Group in the current share price rout.
According to the Morning Context, the state-owned life insurer has invested over Rs 78,000 crore in the group, most of it coming in the last two years. LIC’s biggest investee company is Reliance Industries, followed by nine listed Tata entities and then the Adani Group entities, the report said.
On this matter, Congress general secretary K.C. Venugopal told ANI, “The government at the Centre is using common people’s money to support their closest friends. Congress party has decided to have nationwide agitation across districts of the country in front of LIC and SBI offices on Monday [February 6].”
Separately, credit ratings agency Moody’s warned on Friday that the recent sell-off in Adani group’s shares could reduce Adani Group’s ability to raise capital over the next one to two years. However, Fitch saw no immediate impact on its ratings.
The Hindu BusinessLine reported, citing a report by Jefferies, that the total banking sector debt to Adani Group is at 0.5% of total loans. Exposure of public sector banks is estimated at 0.7%, while that of private banks at 0.3%.
The report added that at present, most banks, especially private players, are said to be declining fresh proposals from the group.
Global investment banks Credit Suisse and Citigroup’s wealth unit have stopped accepting Adani Group securities as collateral for margin loans.
On Friday, Sensex was up 1.5%, or 900 points, to close at 60,841.88, while Nifty was up 1.38%, or 243 points, to close at 17,854.05.
The rupee finished the week down near 82 per US dollar on foreign equity flows likely fuelled by a selloff in Adani Group shares. “Increasing foreign fund outflows and the withdrawal of Adani Enterprises’ $2.5 billion follow-on public offer (on February 1) dampened market sentiment, weakening the rupee against the dollar,” Ritesh Bhansali, vice president at Mecklai Financial Services, told Reuters.