India’s Adani slammed by $48 bln stock rout, clouding record share sale

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Shares of India’s Adani Enterprises sank nearly 20% on Friday as a scathing report by a U.S. short seller triggered a rout in the conglomerate’s listed firms, casting doubts on how investors will respond to the company’s record $2.45 billion secondary sale.

Seven listed companies of the Adani conglomerate – controlled by one of the world’s richest men Gautam Adani – have lost a combined $48 billion in market capitalisation since Wednesday, with U.S. bonds of Adani firms also falling after Hindenburg Research flagged concerns in a Jan. 24 report about debt levels and the use of tax havens.

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COMMENTARY

NARENDRA SOLANKI, FUNDAMENTAL RESEARCH HEAD AT DOMESTIC BROKERAGE ANAND RATHI, MUMBAI

“The news cycle in the past few days has clearly impacted the share sale and you can clearly see that in the subscription levels, especially the low retail participation.

“With the current market price below the FPO offer price, it further puts doubts on issue subscription.”

J.P.MORGAN

“While the Hindenburg report focused mainly on equity valuations within the group, we are primarily concerned about the underlying credit profiles of group companies given underlying bank exposures.

“We think the underlying assets at the bond level are quite adequately leveraged while the promoter-level is an unknown and is something that can be mitigated only through an equity raise, such as the ongoing Adani Enterprises FPO.”

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JOSHUA CRABB, HEAD OF ASIA-PACIFIC EQUITIES AT ROBECO, HONG KONG

“These short-seller reports usually cause a dramatic impact in the short term and the medium-term impact is driven more by the fundamentals and how the company responds to the allegations. Clearly given the size of the group and outstanding debt, this has also impacted the banks.”

SEEMA SHAH, CHIEF STRATEGIST AT PRINCIPAL GLOBAL INVESTORS, LONDON

“At this stage there doesn’t appear to be systemic risk. But markets have come into this year relatively optimistic with hopes for a soft landing for the economy.

It almost feels like markets are priced for perfection, so there is a vulnerability if there is a negative event. At this point it is something we are more attentive to than we would have been – these kinds of stories and their fallout.”

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SAURABH JAIN, ASSISTANT VICE-PRESIDENT, RESEARCH, SMC GLOBAL SECURITIES, NEW DELHI

“The selloff is seriously extreme in the sense … it has clearly dented the overall investor sentiment in the market. The nervousness has led to a fall in stocks across the board. When a selloff of this kind of magnitude is seen in a very short span of time, investors sell other stocks where they are in the money. Sentiments have turned slightly bearish.”

NEERAJ DEWAN, DIRECTOR AT QUANTUM SECURITIES, NEW DELHI

“Everyone had big positions in the stocks … So if a report comes and stocks see a sharp fall, lot of margin calls also get triggered. Those also add to selling pressure. This is a classic case of panic selling. Selling is impacting the banking sector. At least 40% of the group’s debt is exposed to Indian banks, so that exposure is what people are worried about in banks.” (Reporting by Rama Venkat, Bharath Rajeswaran and Chris Thomas in Bengaluru; Dhara Ranasinghe in London; Editing by Savio D’Souza)