Gautam Adani, chairman, Adani Group
The crisis has raised questions about India’s credibility as a global growth engine and a destination for international investors. Earlier this month, MSCI reduced the free float of four companies owned by Adani, while Moody’s Investors Service cut its outlook on Adani Green Energy and three other group firms
The dramatic fall in the Adani Group’s shares following allegations by Hindenburg Research is unlikely to spill over to other Indian conglomerates as they fare well on key business parameters, according to Bloomberg Economics.
Most major companies, including Reliance Industries Ltd. and the Tata Group, scored higher than the ports-to-power conglomerate in a BE analysis of governance, liquidity and leverage conditions at India’s top 17 business houses.
“Adani is an outlier,not representative of India Inc. as a whole,” economists Abhishek Gupta, Scott Johnson and Tom Orlik said in their report on Tuesday.
“India’s conglomerates do not yet rank among global majors like Apple and Tesla. But neither are they about to collapse in a heap of governance failures.”
In its Jan. 24 report, short seller Hindenburg Research alleged accounting fraud and stock manipulation by Gautam Adani, triggering a stock rout at the billionaire empire, wiping out $127 billion off the group’s market value. Adani has repeatedly denied the accusations.
It has a relatively low proportion of freely-tradeable shares, which means excessive control by founders that led to rich valuations, the economists said. It also has one of the lowest liquidity ratios among peers, they added.
Its flagship firm Adani Enterprises Ltd. is covered by just two analysts, against an average of 33 for the 50 biggest companies, according to the report. Though the group is highly leveraged compared to peers, its profits are sufficient to cover interest expenses, it said.
The crisis has raised questions about India’s credibility as a global growth engine and a destination for international investors. Earlier this month, MSCI reduced the free float of four companies owned by Adani, while Moody’s Investors Service cut its outlook on Adani Green Energy and three other group firms.
“Short sellers likely won’t be dominating the narrative on India Inc. in years ahead,” the economists said.
With India’s GDP once again set to outperform, the country’s firms will have a chance to take another step on the path from national champions to global majors,” they said.
Meanwhile, India’s markets regulator on Monday told the country’s top court it was looking into the allegations made against the Adani Group by U.S.-based short-seller Hindenburg Research in a critical report, a court filing seen by Reuters showed. The Securities and Exchange Board of India (SEBI) also said it was looking into the market activity immediately before and after Hindenburg published its report on Jan. 24, the filing said.
Led by billionaire Gautam Adani, Adani Group’s seven listed companies have together lost about $120 billion in market value since Hindenburg’s critical report, which included allegations of improper use of offshore tax havens and stock manipulation, Adani Group has denied the allegations.
Earlier on Monday, India’s Adani Group sought to reassure investors, saying its business plans were fully-funded, its cashflows strong and it remained confident of delivering attractive returns to shareholders.
SEBI has been examining trade patterns and any potential irregularities in the $2.5 billion share sale of flagship company Adani Enterprises that the Adani group was forced to cancel due to the plunge in its shares, Reuters has previously reported citing sources. SEBI confirmed the existence of the investigation for the first time in its Supreme Court filing.
“SEBI is already enquiring into both, the allegations made in the Hindenburg report as well as the market activity immediately preceding and post the publication of the report,” the regulator said in the filing, adding the matter was in early stages of examination. “SEBI is strongly and adequately empowered to put in place regulatory frameworks for effecting stable operations and development of the securities markets,” it added.
Adani Group has appointed accountancy firm Grant Thornton for independent audits of some of its companies in a bid to discredit claims by short-seller Hindenburg Research that have battered its stocks and bonds, two people familiar with the matter said on Monday.
The appointment marks the first major effort by Adani Group to defend itself in the wake of a Jan. 24 report by Hindenburg that accused it of improper use of offshore tax havens and stock manipulation