Gautam Adani retreats after short-seller assault


More than three months after brief vendor Hindenburg Research accused Indian tycoon Gautam Adani’s conglomerate of participating in inventory value manipulation and accounting fraud, the corporate argues that its earnings are proof of the energy of its enterprise.

“It’s unfortunate we had to go through this politicised, malicious report,” stated Adani Group chief monetary officer Jugeshinder “Robbie” Singh on an earnings name for flagship firm Adani Enterprises final week. “But you see the numbers.”

Adani Enterprises greater than doubled its revenue after tax for the three months ending in March to Rs7.8bn ($95mn) from the identical interval final yr, with coal buying and selling and mining earnings earlier than curiosity and tax roughly doubling.

But the conglomerate, whose progress has been pushed by snapping up authorities contracts and a years-long acquisition spree, has needed to adapt in some ways after the short-seller assault. Adani has been compelled to drag again to preserve money after the report wiped some $100bn off the market capitalisation of the group’s firms and Adani Enterprises referred to as off a $2.4bn follow-on fairness providing.

Adani Enterprises stated in a inventory change submitting on Wednesday that it was contemplating a brand new share sale to boost funds however didn’t specify an quantity. Its board will meet to resolve on Saturday.

The group, which denies Hindenburg’s allegations, has slowed down acquisitions and has been shopping for again bonds to shore up confidence.

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The firm has advised buyers and market analysts that its headlong progress — into new sectors together with media and knowledge centres — is on pause. “We understand from management that they are trying to go slow on capex across the board,” stated Rachna Jain, a director at Fitch Ratings’ infrastructure and initiatives workforce. “And even on core areas they are trying to trim growth.”

In 2022, Singh stated Adani Enterprises would spend $5.3bn on capex within the 2024 monetary yr. This month, he revised down the estimate to $3.8bn.

Adani Ports and Special Economic Zone, the conglomerate’s logistics arm, slashed its capex for this yr by half in contrast with final yr and launched a $650mn bond buyback which it stated was partly “to convey the comfortable liquidity position of the company”. Adani’s Ambuja Cement stated this month it cancelled an engineering contract value Rs18bn.

The group additionally seems to have pulled again on searching for some authorities tenders. Adani Green Energy, the group’s renewable energy arm, didn’t win any of 30 new renewable energy tender affords issued in India in April, in line with JMK Research, a Gurgaon-based consultancy.

Asked in regards to the firm’s absence from new bids in an earnings name this month, Adani Green Energy’s head of enterprise improvement stated: “We have a large pipeline of under-construction projects . . . we already have significant capacities tied up. So, we are focusing on value accretion opportunities and will time those as it comes by. We are not necessarily aggressive right now in the market.”

An Adani spokesperson stated the group had not altered its general technique for collaborating in tenders or funding plans for its core infrastructure enterprise. “Capex in new areas of investment, outside the core, is being re-evaluated in the short term as we continue our work with relevant parties to address the economic fallout” of the brief vendor’s report, the spokesperson added.

Dealmaking has additionally taken a again seat. Adani pulled out of buying an $847mn coal energy plant in India in February and has since shunned making new offers, which has had an impression on the broader market because it suffers a stoop in M&A exercise.

Adani constructed his empire on a “blitzkrieg” of acquisitions, stated a Mumbai banker. The tycoon’s quiet interval “will impact investment banking revenues for sure because he’s important to the business”, the banker added. “It’s like if the Chennai Super Kings leave the Indian Premier League,” he stated, referring to the second-placed workforce within the high cricket league.

Following the short-seller assault, analysts anticipate Adani will wrestle to safe new financing. Adani Green Energy, which is growing a 25GW renewables portfolio, had quarterly earnings of Rs5bn and has to make a $1.25bn reimbursement on two bonds in 2024.

“A report like Hindenburg’s does raise additional questions in the mind of investors,” stated an analyst who requested to not be named for concern of repercussions from Adani, “making it more difficult to raise capital in already challenging markets.”

“They’ll be careful about things like corporate governance because now people are watching them really closely,” stated Anish Teli, managing companion at Mumbai-based fund supervisor QED Capital.

On Friday, index supplier MSCI stated it was reducing the burden of two Adani shares. It had reassessed the scale of the free float — the proportion of shares accessible for buying and selling — of Adani Total Gas, Adani and TotalEnergies’ metropolis gasoline enterprise, and Adani Transmission, an influence unit, from 25 to 14 per cent and 25 to 10 per cent, respectively. MSCI calculates a inventory’s weighting based mostly on its free float.

Adani stated it was working “on enhancing the depth of [the] share register and of [the] free float across our portfolio of companies”.

Despite rejecting Hindenburg’s findings, Adani has responded to at least one criticism by altering an auditor at one firm. Hindenburg’s report criticised Shah Dhandharia — the auditor of Adani Enterprises and Adani Total Gas — as a “tiny firm” that “hardly seems capable of complex audit work”.

Last week, Adani Total Gas changed the Ahmedabad-based auditor 4 years earlier than its time period was set to run out and introduced Walker Chandiok, the Indian affiliate of London-headquartered auditor Grant Thornton, as its new auditor.

“If you want to have some sort of comfort in the audit process, you have to rely on big auditors,” stated Sharmila Gopinath, India specialist adviser to the Asian Corporate Governance Association. She added that this assurance was particularly vital to international buyers.

An Adani spokesperson stated Adani Total Gas had supposed to change its auditor earlier than Hindenburg’s report.

At residence in India, the Supreme Court in March directed Indian markets regulator Sebi to research the conglomerate.

The brief vendor’s report has additionally had an impression on Indian politics. Opposition events have seized on the problem to browbeat Prime Minister Narendra Modi a yr forward of a nationwide election.

Modi and Adani, each from the state of Gujarat, are broadly perceived to have an in depth relationship that analysts say is now a political legal responsibility for the prime minister.

“Modi cannot be too complacent on the Adani issue,” stated Shruti Kapila, professor of historical past and politics on the University of Cambridge.

The approach Modi offers with the Hindenburg report is what “will really matter, particularly the way he is punishing opposition leaders”, stated Kapila. “That could backfire.”

Additional reporting by John Reed in Bengaluru