STORY – The conglomerate lost 105 billion euros in 2 weeks. The founder is accused of accounting fraud.
The Adani conglomerate continued its descent into hell on Monday on the Bombay Stock Exchange. Shares of six of the group’s nine companies continued to fall, with the worst performance coming from Adani Transmission, which lost 10%. In two weeks, Adani’s market valuation has shrunk by 105 billion euros.
It all started on January 24 when Hinderburg Research, an American investment company, published an investigation accusing the group’s boss, Gautam Adani, of accounting fraud and price manipulation via a network of front companies.
The conglomerate operates in a very centralized manner. Everything is in the hands of Gautam Adani and his family
The head of a major Indian bank
Third world fortune before these revelations, the billionaire denies, then tries to reassure. On Monday, the group repaid 1 billion euros in equity-backed loans which did not mature until 2024. Even the Minister of Finance, Nirmala Sitharaman, stepped up to the plate on Saturday: “Neither the macroeconomic fundamentals nor the image of our economy have been harmed.” Revealing the political and economic weight of this empire which, alongside the Tata and the Ambani, is one of the most powerful in the country.
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The activities of the Adani conglomerate, with more than 26,000 employees, range from ports and airports to electricity production and distribution, coal mining, cement manufacturing, 5G, green hydrogen, and even apples. The market capitalization of his companies stood at 217 billion euros on the day of the publication of the Hinderburg survey. Gautam Adani has diversified his group for twenty years through fundraising and acquisitions of public and private assets but also, say his detractors, thanks to the complacency of the authorities and Prime Minister Narendra Modi. Its debt has now reached around 27 billion euros. Hence this nagging question: is the Indian banking system under threat? What will happen if Adani no longer manages to raise funds and repay?
1er February, Gautam Adani canceled a follow-up public offer of 2.3 billion euros of shares in the face of the stock market rout of his group. The RBI, the Indian central bank, has asked financial institutions to provide details of the loans granted to Adani. The banks were rather reassuring. Six establishments declared holding 886 billion rupees of assets in the form of shares and loans partly backed by existing infrastructures (10 billion euros). These assets represented between 0.6 and 1.5% of their total holdings.
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These figures illustrate the caution of bankers with regard to Adani. Long before Hindenburg’s report, they had heard of the billionaire’s controversial actions. “Hindenburg is not the first company to point the finger at Adani. It’s been at least five or six years that other actors said more or less the same thing. So, in the past, we have commissioned audits to understand the capital structure, how funds are raised and redirected. It was all the more important since the conglomerate has been raising money for twenty years to finance its expansion.testifies the leader of a large Indian bank on condition of anonymity.
Bankers’ hesitation
This financier himself reviewed loan applications from Adani for several years. “Gautam Adani came to see us on several occasions to finance very ambitious projects. But we asked him to wait“, adds the banker, who explains: “The loans granted by our bank had become very high in the mid-2010s. There was a risk of exceeding the ceilings authorized by our internal rules, or even by the RBI. Furthermore, the suspicions hanging over Adani convinced us that we had to be careful. Despite everything, we remained confident. Gautam Adani has been in business since 1985 and has never defaulted on his loans from Indian banks. The conglomerate’s cash position has always been strong.»
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The hesitation of the bankers pushes Gautam Adani to turn to international investors. Last year, he financed the takeover for 10 billion dollars of the Indian activities of Holcim thanks to foreign banks. He also raised 2 billion from International Holding Company, based in Abu Dhabi
While the risk of contagion from the Indian banking system seems low, uncertainty hangs over the conglomerate’s ability to finance its expansion and create jobs. “In the next twelve months, there will be no cash flow problem. Adani has the means to repay his loans and pay his charges. After this time, it will be difficult to raise funds to complete current projects. If he fails to convince investors, he will have to sell part of his assets“, adds the banker.
If this halt were to materialize, the SME subcontractors of Adani will be the first victims. The CMIE, a statistical study center in Bombay, has listed 22 projects in sectors such as energy, transport and logistics, the total cost of which is estimated at 4120 billion rupees (46 billion euros). These include the construction of a second airport in Bombay, which is due to be completed in 2024, the expansion of the port of Mundra in the west of the country, the development of 10 GW of solar energy in the State from Andhra Pradesh…
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Still, to restore its reputation, the conglomerate will have to reform its internal governance. Hinderburg’s survey indicates that publicly traded Adani conglomerate companies keep changing CFOs. Adani Enterprises, for example, had five in eight years. “It is totally true, testifies the banker quoted above. The conglomerate operates in a very centralized manner. Everything is in the hands of Gautam Adani and his family.»
Finally, Hinderburg’s revelations about possible price manipulations are all the more embarrassing for the Sebi, the Indian stock market policeman, as these accusations have been circulating in banking circles for several years. Does Gautam Adani’s notorious closeness to Prime Minister Modi explain why Sebi did not act sooner? Asked Friday about his links with the head of government, the businessman denounced “baseless allegations. (…) My professional success is not due to a single leader.»
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