The crisis at Adani Group, following a scathing report last month by New York-based short-seller Hindenburg Research that sent its stock crashing down, has raised concerns over its likely impact on the India story just when it had started to gain traction amid the general gloom.
The stakes are quite high, with Wall Street biggies such as BlackRock, Elara Capital, and Vanguard having exposure to the group.
But it is not just about the economy or business. Gautam Adani, the billionaire behind the business empire, is seen as close to India’s ruling Bharatiya Janata Party, adding another dimension to the issue and helping polarise public opinion in the country.
That the group is headquartered in Ahmedabad, the capital of Prime Minister Narendra Modi’s home state Gujarat, has widened the political divide, with the Opposition quick to rake up the issue in Parliament, demanding thorough investigations.
The more than 30-year-old conglomerate, which was traditionally into ports and mining but has now diversified into pretty much everything from airports to defence and aerospace to green energy, has seen its seven listed companies together losing $120 billion in market value since the January 24 report.
Adani himself has been knocked off the top five rankers on the Forbes billionaire’s list to the 24th position following the report.
Amid all the furore, stock market analysts shrugged off the controversy, calling it a short-term blip that is not going to cloud the India story for global investors in the long run.
“What we are seeing now can be categorised as short-term volatility in the markets that have been caused more by a knee-jerk reaction,” Mahesh Singhi, founder and Managing Director at investment banking firm Singhi Advisors, told DealStreetAsia. “Market sentiment is such that people will be cautious for a while to dole out debt to India Inc.”
He, however, also questioned why the company alone is facing the barrage of criticism over the report’s “findings”.
“While the crisis has seen several questions raised on the company being leveraged, even lenders should be answerable on that. After all, they are the ones who did the due diligence, and the credit call was based on hard securities and cash flow of the business and has nothing to do with the market cap of the company,” Singhi said.
Wall Street banks that have backed the Adani Group include Barclays, Deutsche Bank, and Standard Chartered Bank, among others, as the group amassed huge debt to fund its expansion plans.
It was only last year that the group completed the leveraged buyout of a cement business from Swiss firm Holcim for $4.5 billion.
To be sure, all companies under the Adani umbrella were the darlings of US and European banks even till recently. The banks underwrote about $10 billion in US-dollar-denominated bond sales by six group companies between 2015 and 2021, according to financial market data provider Refinitiv.
For global investors and multinationals betting big on India, “it’s a temporary setback. As time passes, confidence will be back”, said Girish Vanvari, founder of advisory firm Transaction Square.
This is primarily because the group’s businesses are fundamentally strong and are not easy to replicate, said Vanvari. “Many of the businesses of the group are fundamentally very strong with strong cash flows. And to be fair, the market is holding up too,” he added.
The sentiment was shared by Pratip Mazumdar, a partner at Inflexor Ventures. “The group’s debt seems to be structured with robust underlying cash-generating growing assets, creating good fixed asset security,” he said.
Mazumdar added that the India story is too robust to be destabilised, adding that “the short-term volatility of the kind that is impacting Adani stocks will always exist. It’s highly unlikely in the long run that the impact will be felt in any material way on the India story or Wall Street banks”. “Just like ‘one swallow doesn’t make a spring’.”, he said.
Meanwhile, the group’s flagship Adani Enterprises on Tuesday reported a consolidated profit of Rs 820 crore in Q3 FY2023 against a net loss of Rs 12 crore in the same quarter a year ago, while revenue from operations rose 42% to ₹26,612 crore.
The group is also said to have appointed accountancy firm Grant Thornton for independent audits of some of its companies.
The company’s stock has lost half its value in the last month. It closed at Rs 1,750 apiece on Tuesday, up 1.8% from Monday’s close.