Adani crisis ignites India contagion fears, credit warnings

Amid concerns turmoil could over into broader financial system, India’s central bank has asked lenders for loan details, sources say.

Indian billionaire Gautam Adani addressing investors from an unknown location
Troubled tycoon Gautam Adani has been forced to cede the crown of the third-richest person in the world [File: Adani Enterprises Ltd via AP Photo]

Financial contagion fears spread in India on Friday as Adani Group’s crisis worsened, with ratings agency Moody’s warning the conglomerate may struggle to raise capital and S&P cutting the outlook on two of its businesses.

Chaotic scenes in both houses of India’s parliament led to their adjournment on Friday as some legislators demanded an inquiry after a dramatic meltdown in the stock market values of Indian billionaire Gautam Adani’s companies.

The crisis was triggered by a Hindenburg Research report last week in which the United States-based short-seller accused Adani Group of stock manipulation and unsustainable debt.

Adani Group, one of India’s top conglomerates, has rejected the criticism and denied wrongdoing in detailed rebuttals but that has failed to arrest the unabated fall in its shares.

In the latest sign of the crisis widening, India’s Ministry of Corporate Affairs has begun a preliminary review of Adani Group’s financial statements and other regulatory submissions made over the years, two government officials told the Reuters news agency.

Although shares in Adani companies recovered after sharp falls earlier on Friday, the seven listed firms have still lost more than $100bn – about half their market value – since Hindenburg published its report on January 24.

Moody’s warned the share plunge could hit the Adani Group’s ability to raise capital, although fellow credit ratings agency Fitch saw no immediate effect on its ratings.

“These adverse developments are likely to reduce the group’s ability to raise capital to fund committed capex or refinance maturing debt over the next 1-2 years. We recognise that a portion of the capex is deferrable,” Moody’s said in a statement.

For Adani, a former school drop-out from Gujarat, the western home state of Indian Prime Minister Narendra Modi, the crisis presents the biggest reputational and business challenge of his life as his firm struggles to assuage investor concerns.

Amid fears the turmoil could spill over into the broader financial system, some Indian politicians have called for a wider investigation and sources have told Reuters the central bank has asked lenders for details of exposure to the group.

“Contagion concerns are widening, but still limited to the banking sector,” Charu Chanana, a market strategist with Saxo Markets in Singapore, said on Friday.

India’s Reserve Bank said the country’s banking system remained resilient and stable. The State Bank of India said it was not concerned about the exposure to Adani Group but further financing to its projects would be “evaluated on its own merit”.

Adani Enterprises shares closed 1.4 percent higher after earlier slumping 35 percent to hit their lowest since March 2021. That low took its losses to nearly $33.6bn since last week, a 70 percent fall.

Shares fell by 5 percent in Adani Total Gas, a joint venture with France’s TotalEnergies, which said its exposure to Adani companies was limited.

Adani Ports and Special Economic Zone was up 8 percent, while Adani Transmission and Adani Green Energy were both down 10 percent.

“There is a risk that investor concerns about the group’s governance and disclosures are larger than we have currently factored into our ratings,” S&P said as it cut its outlook on Adani Ports and Adani Electricity to negative from stable.

India’s divestment secretary Tuhin Kanta Pandey told Reuters that Life Insurance Corp (LIC) shareholders and customers should not be concerned about its exposure to the Adani Group.

State-run LIC has a 4.23 percent stake in the flagship Adani Enterprises, while its other exposures include a 9.14 percent stake in Adani Ports.

‘One instance’

Adani, 60, has in recent years forged partnerships with, and attracted investment from, foreign giants as he pursued global expansion in industries from ports to power.

The market and financial crisis mean foreign investors, many already underweight on India as they consider its stock market overpriced, are reducing exposure.

“One instance, however much talked about globally it may be … is not going to be indicative of how well Indian financial markets are governed,” India’s finance minister, Nirmala Sitharaman, told Network18 when asked about the market weakness.

Hindenburg’s report said key listed Adani companies had “substantial debt” and shares in the seven listed firms had a downside of 85 percent due to what it called sky-high valuations.

The Adani Group has called the report baseless and said over the past decade, its companies have “consistently de-levered”.

The listed Adani firms now have a combined market value of $107.5bn, versus $218bn before the report.

That has forced Adani to cede the crown of Asia’s richest person to Indian rival Mukesh Ambani of Reliance Industries Ltd, while Adani has slid to 17th in Forbes’s list of the world’s wealthiest people.

He had ranked third, behind Elon Musk and Bernard Arnault.

Source: Reuters