Gautam Adani fails to reassure investors as market wipeout hits $100 billion

New Delhi/London

Shares in Gautam Adani’s company tumbled further on Thursday after an attempt by the Indian billionaire to calm panicked investors failed to stem a stock market meltdown that wiped out $100 billion in value at his conglomerate.

“For me, the interests of my investors come first and everything is secondary,” the 60-year-old businessman said in a pre-recorded video address released after he signed a $2.5 billion deal to sell new shares in his flagship company Adani Enterprises abruptly gave up just 24 hours after it was sealed.

“Once the market stabilizes, we will review our capital markets strategy,” he added

It was the first time the tycoon spoke about the market chaos that slashed his personal wealth by nearly $50 billion in just over a week and removed his crown as Asia’s richest man. But it wasn’t enough to calm the markets. Adani Enterprises shares plunged 25% Thursday, while shares of its other companies fell 5% to 10%.

The unprecedented fall in Adani Group shares began when an American short seller, Hindenburg Research, accused the conglomerate of fraud and stock market manipulation. The group of seven listed companies has lost 50% of its value since Hindenburg’s report was published last Tuesday.

Reuters reported Wednesday that the Securities and Exchange Board of India (SEBI) is investigating the share price declines and possible irregularities in the failed share sale, citing a source with direct knowledge of the matter. The SEBI has not yet responded to requests for comment.

The central bank of India has asked lenders for details of its debt exposure to the Adani group, Bloomberg reported on Thursday, citing unnamed sources. The Reserve Bank of India did not respond to a request for comment.

The crisis swirling around one of India’s most prominent businessmen could have bigger implications for the fast-growing economy, which was aggressively courting foreign investment at the World Economic Forum in Davos just two weeks ago.

“When you look at broader market activity, it’s obvious that foreign investors…have had a rude awakening,” said Saurabh Mukherjea, founder of Marcellus Investment Managers.

The aftermath of the Hindenburg report could engulf other big Indian companies, experts have warned.

“The Adani saga opened a big can of worms,” ​​said Manish Chowdhury, director of research at brokerage Stoxbox. “India’s story now looks bleak for foreign investors,” he added.

Chowdhury said investors are now “skeptical” about the accounting practices at all Indian firms, while Mukherjea said his clients are already asking more questions.

“Of course…they are asking us to hold hands a little bit when it comes to how accounting and corporate governance works in India,” Mukherjea told CNN.

Adani is considered a close ally of the Indian Prime Minister. And opposition MPs have begun calling for an investigation into the Hindenburg report. They even organized a protest in India’s parliament on Wednesday while the country’s finance minister presented the annual budget.

“This will certainly deter large foreign investors now because it has now become a political issue,” said Stephen Innes, managing partner of SPI Asset Management.

In an investigation published Jan. 24, Hindenburg Research accused the Adani group of “brazen stock manipulation and accounting fraud over the decades.”

The research firm questioned the Adani firms’ “sky-high valuations” and said their “substantial debt” had placed the entire group “on a precarious financial footing.” She concluded her report with 88 questions. These range from asking for details about Adani’s offshore entities to why it has “such a convoluted, interconnected corporate structure”.

While the Adani group immediately denounced the report as “baseless” and “malicious,” the video address marked the first time the company’s founder had spoken about the crisis.

Analysts have long raised concerns that the rapid expansion of Adani’s businesses comes with huge risk. The group was fueled by a $30 billion borrowing, making it one of the most indebted companies in India.

CreditSights, a research firm owned by the Fitch Group, released a report on Adani Group titled “Deeply Overleveraged” last year, in which it expressed strong concerns about its debt-fueled growth plans.

That was announced by the Adani group at the time that their companies’ leverage ratios “remain healthy and in line with industry benchmarks in their respective sectors. ”

In his video address, Adani said the group’s fundamentals are “strong” and that it has an “impeccable track record of meeting” its debt obligations. He said Adani Enterprise’s share offering had been withdrawn to protect investors from losses – the stock had traded well below the offer price since last week.

“This decision will have no impact on our existing operations and future plans. We will continue to focus on timely execution and delivery of projects,” he added.

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