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Adani under attack: Can the billionaire survive the Hindenburg onslaught?

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Gautam adani, 60, is like the proverbial cat with nine lives.

The highly controversial school dropout-turned-global business tycoon has faced countless challenges in his lifetime, even death, and only emerged stronger. In 2008, the Adani Group Chairman and Founder survived the 26/11 terrorist attack at Mumbai’s Taj Mahal hotel, where he was dining when the attackers struck. A decade prior, on New Year’s Day of 1998, Adani was kidnapped by two gangsters in Ahmedabad, and was held to ransom. Whether he paid the ransom or not is not known. Neither is it consequential.

What’s important is: he survived. Both times.

Will he survive Hindenburg? There is no evidence to suggest anything to the contrary, at least not yet, albeit the Adani empire has shrunk dramatically since the US-based short-selling research firm’s allegations of accounting fraud, stock manipulation and routing of funds through overseas shell companies were revealed in its report on January 24 (see chart ‘Hindenburg Alleges…’). Despite a 413-page rebuttal to the charges, which Hindenburg dismissed as inconsequential, Adani’s listed firms were battered by the markets, recovering now and then only to plunge further on more bad news. All through this mayhem, the burly billionaire has maintained a stoic posture, once in a while floating a confidence-building measure here, and another there (see chart ‘Confidence-Building Measures’).

On January 27, three days after the Hindenburg assault, the Rs 2.4-lakh crore Adani Group’s mothership, Adani Enterprises, opened its much-anticipated Rs 20,000-crore follow-on public offering (FPO). But with the circumstances having changed, the management deliberated on whether to look at overseas markets to raise money, shelve the issue altogether, or lower the offer price. In the end, Adani and his ‘A’ team stuck to their guns and went ahead as originally planned. After much huffing and puffing, the FPO scraped through on the last day, January 31, with a subscription of 1.12 times, thanks to sustained bidding by institutions, family offices and high net-worth individuals.

The key for the group is to strengthen the balance sheet and probably cut down on the number of projects in order to reduce the debt. So, now is not the time to raise debt but [to] reduce it

Mobius Capital Partners LLP

The same day, even as Adani Enterprises’ FPO hobbled past the finish line, Gautam Adani was pictured in Israel with its Prime Minister Benjamin Netanyahu, smiling assuredly as his Indian conglomerate acquired Israel’s key Haifa port for $1.2 billion. Adani was trying to send a signal to the markets—this was just another day at the office; he was on top of the situation. After all, his group spans key infrastructure segments like airports, ports, roads, power and cement, among other things, which have physical assets generating enough cash to stave off any worries. Under normal circumstances.

But circumstances were not normal and, clearly, Adani’s signals were not having their desired effect. On February 1, global banks like Credit Suisse, Citi and Standard Chartered stopped accepting Adani’s bonds and securities as collateral, resulting in a hammering of group stocks. The same day, the group called off the FPO. Shares of Adani Enterprises, which had touched a high of Rs 4,189 in December 2022, plunged to a 52-week low of Rs 1,017 on February 3 (both intra-day trading figures). Since January 24, when the Hindenburg report became public, shares of Adani Enterprises, Adani Green Energy, Adani Total Gas and Adani Transmission more than halved in a matter of days, wiping off over $100 billion in market capitalisation in the biggest stock rout Indian markets have seen, though the losses have been partially recouped.

“I am not surprised, since the Adani Group is heavily leveraged and the high debt is a cause for concern,” says Mark Mobius, the widely followed global investor and Founder of Mobius Capital Partners LLP. So much so that capital markets regulator Securities and Exchange Board of India (Sebi) has also got into action. “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, to identify violations of Sebi regulations…,” the regulator told the Supreme Court on February 13.

Questions now swirl around how the group would manage to salvage its reputation and service its staggering gross debt of Rs 2.25 lakh crore. For Adani, who is used to lenders chasing him to fund his various projects, the changed circumstances are bound to pose serious challenges. How will Adani, a man perceived to be close to the ruling political dispensation, recover from this crisis? There is a lot at stake for his investors, joint venture partners, lenders and the family of shareholders. The coming weeks and months are expected to see the Adani story continue to play out as the embattled billionaire—who has dropped out of the global top 20 billionaires’ list (he was at No. 24 as of February 14)—struggles to keep his empire and investment plans, earlier estimated at $107 billion over 9-10 years, on course. The question, then, is: where does the Adani Group go from here?

The key for the group is to strengthen the balance sheet and probably cut down on the number of projects… now is not the time to raise debt but to reduce it,” says Mobius, who generally advises investors to avoid heavily leveraged companies in a rising interest rate environment globally.

“A valuation of Adani Enterprises with upbeat assumptions on revenue growth and operating margins… without factoring [in] the Hindenburg accusations… yields a value of about Rs 945 per share”

Stern School of Business

The other major issue is the limited retail holding in Adani Group stocks—the promoters hold anywhere between 57 per cent (in the recently acquired ACC) and 88 per cent (in FMCG major Adani Wilmar)—which Adani tried to partially correct through the FPO of Adani Enterprises. “They wanted to increase the public float. That made sense, but the Hindenburg report was totally unexpected,” says a banker familiar with the group. Another corporate banker who has lent to the group says equity valuation has little meaning. “We have never lent against equity. The Adani Group went for leveraged growth, which was at a time when debt was easily available. In the new scenario now, expansion will be difficult,” he says.

The view on the street is that until a strategic investor puts in cash in one of the operating firms, raising money would be a challenge. “That will entail a process of due diligence and can address some of the issues raised by Hindenburg,” says a banker. The conglomerate could still look at foreign banks, even as domestic lenders including State Bank of India have come under scrutiny over their exposure to the group. In fact, the bulk of the group’s incremental funding for new businesses and acquisitions in recent years has come through overseas sources like foreign banks and bonds. Large acquisitions, such as cement, have been fully funded by foreign banks, stated a report by financial services firm CLSA.

Going ahead, while the Adani Group is among the Top 3 across the businesses it operates in—ports, airports, power, cements, solar panels, etc.—it would still need funds for expansion such as in Adani Ports, where 100 million metric tonnes capacity will be added, or the massive expansion for airports including the new one in Navi Mumbai, or to fund more buyouts in the cement sector. Undoubtedly, the terms of lending would be different now. “For any corporate, the credit line is its lifeblood. Any hindrance to that will have a cascading effect and at this point, it is an area of concern,” says Mahesh Singhi, Founder & MD of Singhi Advisors, an M&A advisory firm. Creditors and other bond holders, he says, need to take a long-term approach to the Adani Group businesses from now on. “That’s what they did when they lent money. Nothing should change when it comes to that. Adani is certainly not a Satyam and all its businesses are fundamentally well-placed.” Singhi says the assets are as hard and real as the liabilities are.

Indeed, the group’s assets are valued higher than even its astronomical debt. The total debt of the group’s seven listed entities—Adani Enterprises, Adani Ports & SEZ, Adani Power, Adani Green Energy, Adani Transmission, Adani Wilmar and Adani Total Gas—was pegged at around Rs 2.25 lakh crore at the end of FY22. Total assets, on the other hand, were valued at Rs 4.1 lakh crore, per data from corporate database ACE Equity. Further, the cumulative net profit of the seven companies in FY22 was nearly Rs 13,200 crore, with none in the red. Add recent acquisitions ACC, Ambuja Cements and NDTV to the mix, and the cumulative profit goes up to more than Rs 18,800 crore. There is also the extra cushioning of the seven companies’ total cash reserves of over Rs 30,000 crore.


In addition, Vinit Bolinjkar, Head (Research) at Ventura Securities, points out that at the group level, the Ebitda generated is around Rs 50,000 crore per year. “They could pull back on their investments in hydrogen or reduce the planned capacity in green energy. That will help reduce the debt levels,” he says, adding that on the debt burden, the domestic piece is well backed by assets and healthy cash flows from its businesses. “In the international markets, the bonds have back-ended payments and there is no serious cause for concern. Their approach has been about projects with scale and a dominant market share. Now, that needs to be fine-tuned in a few places.” Bolinjkar explains that projects like green energy give not just very high operating margins (in excess of 90 per cent) but also throw up enough cash to service existing debt.

There is not even 1 per cent risk for policyholders [and] shareholders [from LIC’s holdings in the Adani Group]. There will be no impact on the investments… It is just a drop in the ocean


Speaking of energy, in yet another setback, European multinational energy major TotalEnergies, which has a stake in Adani Total Gas and Adani Green, has put on hold its hydrogen partnership with the Indian conglomerate, although it said that its $3.1-billion investment in the group is still healthy. “It makes no sense to add more (projects) until there is clarity. Adani has to explain the allegations,” Patrick Pouyanne, CEO of TotalEnergies, said in an earnings call in early February.

Incidentally, rating agencies—whose words matter in the bond market—seem to be divided over their outlook on the Adani Group. S&P cut its outlook on two group firms (Adani Ports and Adani Electricity), and Moody’s downgraded its outlook for Adani Green Energy, Adani Green Energy Restricted Group, Adani Transmission Step-One and Adani Electricity Mumbai from stable to negative. On the other hand, Fitch said loans to all Adani Group entities “generally account for 0.8-1.2 per cent of total lending for Fitch-rated Indian banks… Even in a distress scenario, it is unlikely that all of this exposure would be written down, as much of it is tied to performing projects”. Fitch added that Indian banks’ exposure to the group is not enough to present a substantial risk to the banks’ standalone credit profiles. For instance, SBI Chairman Dinesh Kumar Khara has publicly said his bank’s exposure of around Rs 27,000 crore was just 0.9 per cent of its total loan book.

Despite the pummelling the group has received of late, bankers and analysts continue to express confidence in the high-quality assets owned by the group. Says an infrastructure sector chief executive who sold a key asset to the Adani Group a few years ago: “It’s not as if the assets do not have value. If the valuations have soared to unrealistic levels, it does not take away from the fact that the assets have a lot of intrinsic value.” Take the case of Adani Power, which sits on a capacity of 20 GW. At today’s valuations, a potential buyout can be struck at Rs 5 crore per MW taking the value of the company to Rs 1 lakh crore. Knocking off a debt of Rs40,000 crore in Adani Power’s books, the equity component will still fetch Rs60,000 crore. (Of course, in the case of a distressed asset, the story is quite different. For perspective, this January, Vedanta acquired the debt-ridden Meenakshi Energy’s 1,000-MW plant in Andhra Pradesh for Rs 1,140 crore or Rs 1.14 crore per MW. But Adani’s power plants are not distressed by any stretch.)

Using the same logic for the cement businesses, Ambuja and ACC, which Adani acquired from Swiss major Holcim for $10.5 billion, leave behind an equity value of more than Rs 90,000 crore after knocking off their debt of Rs 50  crore.


By Ashish Rukhaiyar

In its own words, Nathan Anderson’s New York-based Hindenburg Research is a firm that specialises in forensic financial research on issues like accounting irregularities, undisclosed related-party transactions, illegal or unethical business or financial reporting practices, and also undisclosed regulatory or financial issues, among others.

Noble objectives. But there’s also a slightly different underlying to this descriptor. Hindenburg is a short-seller, which means it could make a profit from its damning reports as well, in addition to exposing chinks in firms’ armour. Adani Group companies’ implosion in the stock markets is the outcome of one such shorting investment by Hindenburg.

Going short on a stock is a complex and risky investment manoeuvre designed to generate a profit if the share price of a ‘shorted’ firm falls, especially one that is perceived to be overvalued. How does it work? Shares are borrowed at, say, `X, from a broker and then sold at their current market value (say, `X or `X+10). If the value falls to, say, `X-10, the borrower buys back the shares from the market at `X-10, and returns them to the lender, thereby making a profit. Of course, if the bet fails and the shares climb in value instead of falling, then the borrower makes a loss, which is why this is so risky.

Hindenburg took the risk, and its ruse worked, although it is difficult to ascertain the quantum of gains it might have made. Before releasing its report, Hindenburg took short positions on Adani Group firms. (In India, there are many restrictions imposed on short-selling and, hence, Hindenburg took its short positions through Adani’s US-traded bonds and non-India-traded derivative instruments.) Subsequently, the markets got jittery after the report was released, and Adani Group firms lost $100 billion-plus in market capitalisation.

Hindenburg has made a habit of the shorting strategy. In 2020, the firm released reports on as many as seven companies after taking short positions on them. Its report on US-based automaker Nikola grabbed headlines in September 2020, scything the stock’s value from $66 in June 2020 to around $2.5 currently. Hindenburg had taken a short position in Nikola before releasing its report. Similarly, the shares of Genuis Brands, the target of a June 2020 report, fell from around $7 to $1.50 with Hindenburg again having a short position. Shares of China Metal Resources Utilization, Predictive Technology Group and HF Foods, among others, all witnessed huge falls in the months following reports by Hindenburg, which had taken short positions in each of the companies.

Ostensibly, Anderson and Hindenburg would have made money from these stocks’ crashes. This profit-making objective puts to question the motive of short-sellers such as Hindenburg, albeit the corporate governance aspects of their reports surely can’t be wished away.

The Adani Group did not respond to a detailed questionnaire from Business Today for this story.

Much as the robustness of the businesses is acknowledged, but the ability to raise money with ease, as it was earlier, is bound to be hit as lenders turn jittery after the Hindenburg charges. Despite the brave faces, even Indian lenders will need to think hard before cutting big cheques for the group in the near future.

As part of his media interactions in January—ahead of the ill-fated FPO—Jugeshinder Singh, Group CFO of the conglomerate, had said that $50 billion was the planned capex for the green hydrogen business alone. Lenders point to the inherent difficulties of this exercise in the domestic and international markets given the current situation. On the face of it, the stakes outside Indian shores are more complicated. After the Credit Suisse and Citi actions, S&P Dow Jones has removed Adani Enterprises from its sustainability indices while Morgan Stanley Capital International has lowered the free float factor of Adani Enterprises, Adani Transmission, Adani Total Gas and ACC. [MSCI later said that it would postpone the action on Adani Transmission and Adani Total Gas till May]

Bankers say that in the international market, some investors will hold on to the group’s bonds but the worry is that “investors generally panic”. Besides, they explain, there are “vulture investors” who will come in to push the price down and lead to higher bond yields. “At the crux is to restore confidence to ensure the repricing of bonds takes place. Besides, the vulture funds will be hugely attracted to the yields, which they don’t see in any other part of the world,” says a corporate banker.

The markets have brought some discipline to the Adani Group stocks as shares of some of the group firms were highly valued. Debt is not really a concern… as it has good quality assets

Helios Capital

Speaking of confidence-building measures—a term used more in diplomacy and military warfare—the group is leaving no stone unturned. On February 6, the group said that the promoters have prepaid $1.1 billion to release share pledges in three group companies—Adani Ports & SEZ, Adani Green and Adani Transmission—although it was accompanied by the usual speculation around margin calls being triggered that typically happen post a sharp and swift fall in share prices. The money for this came from the group’s unlisted entities, which are said to have reserve capital of close to $3 billion to meet any contingency.

Then, the development related to timely coupon payments on dollar-denominated bonds was also disseminated promptly by the Adani Group. As things stand, the repayment schedule is on track (See table ‘Bonds Due for Repayment’) with around $2 billion needing to be repaid by the end of next year. Just on the basis of the Rs 30,000-crore cash on the books, meeting that is not a challenge.

Further, the group announced that it is mulling an independent assessment in terms of compliance and governance to ensure all transactions and disclosures have been made as per the requisite regulations. It is also planning to prepay $500 million worth of loans that are due in March, which relate to a part of the loan raised to finance the purchase of Holcim’s cement assets in India. The group was earlier mulling refinancing the loans, but then thought it best to prepay given the current scenario. The latest financial numbers of some of the group companies have also highlighted strong guidance, future cash flows and the quantum of debt that will be reduced over time—all aimed at addressing the concerns in the domestic and international markets.

Speaking of domestic markets, banks are expected to be reticent till there is clarity on the group’s financial structure. “There is a good chance that the group will go into consolidation mode for the next 1.5-2 years. Diluting stakes in profitable companies may be a sensible and viable option,” says a leading investment banker who wishes to remain anonymous. He says it is a good opportunity to change the composition of the board and just up the game on corporate governance.

Analysts point out that Adani’s play is in the infrastructure space, which is one that has serious entry barriers. “He is the only pure-play infrastructure group in India. For many years, one has seen how the likes of GMR, GVK and Lanco have struggled, and Adani is the only survivor,” says Deven Choksey, Promoter and MD of KRChoksey Group, a wealth management firm. He picks out the government’s thrust on the sector through the allocation of more than Rs 20 lakh crore over the last three Union Budgets. “In the infra space, players have to deal with the government, together with high interest costs, execution of projects using right technology in a time-bound manner. Judging a player only on the basis of its stock price is an incorrect approach,” reasons Choksey, who adds that since these projects “are meant for decades and centuries, valuations must be calculated based on current value of currency under replacement costs and time”.

The critical issue relating to the Adani Group seems to be the high valuations the stocks commanded till last year. In a dramatic run-up, the entire Adani pack surged northward for the better part of 2022, increasing the group’s market capitalisation by over 100 per cent. This surge also catapulted Gautam Adani to the position of the third-richest person on the planet for a fair period, before Hindenburg struck. Most market observers now say the stocks were seriously overvalued despite assets being on the ground.

Aswath Damodaran, one of the world’s most renowned experts on valuations, believes that the fair value of Adani Enterprises shares is Rs 945, as opposed to its current trading value of around Rs 1,600. “Investors in family group companies, no matter how honourable the family, are buying into cross-holdings, opacity and the possibility of wealth transfers across family group companies. Those risks increase, if the family group companies are built around political connections…,” he said on his blog.

But valuations apart, despite the high debt levels, market experts don’t reckon that there is a serious concern around debt. “Debt is not really a concern for the group as it has good quality assets. The only concern was the high valuation,” says Samir Arora, Founder of Helios Capital, a portfolio management services firm. “The message from the market seems to be that ‘don’t be so aggressive in your growth; focus on sustainable growth’. This ongoing issue, however, could impact the future growth plans of the group. The markets have brought some amount of discipline to the Adani Group stocks as shares of some of the group companies were highly valued.”

There is no denying the fact that the top brass of the Gujarat-headquartered conglomerate will have to go back to the drawing board and review every single aspect of its growth strategy. “Adani Group’s calling off of its fully-subscribed FPO has left more questions unanswered. One question that is awaiting clarity is how the group intends to meet the objectives as stated in the prospectus of the FPO,” says Sumit Agrawal, Managing Partner of Regstreet Law Advisors and a former legal officer of Sebi.

Among other things, the aim of the Rs 20,000-crore FPO was to repay debt amounting to Rs 4,165 crore and fund capex for businesses related to green hydrogen, airports and roads to the tune of Rs 10,869 crore.

A top executive close to the group says there is no question of defaults on debt for the next three to five years. “The operating businesses generate high levels of cash, and are in a good position to service debt,” he says. This is exactly what the group seems to be telling the markets—that its business model has been centred on predictable cash flows from existing businesses. “For a group of this size, the debt that it has is not a big amount especially when you see that all businesses are asset-based and are appreciating in value. They also have cash flows to support that quantum of debt,” says J.N. Gupta, Founder & MD of Stakeholder Empowerment Services, a proxy advisory firm.


Gupta, however, believes that while the group does not face any inter-dependence risks in terms of cross-holdings, inter-company guarantees or loans, one could say that there is a “management bandwidth” issue that the group should look at resolving. “The financial health of one company will not impact any other group company. On management bandwidth, one can say Gautam Adani and his family members are involved in all companies of the group. Though there could be an issue here, each company is headed by a professional CEO,” says Gupta, a former ED of Sebi.

The financial health of the group may not be an immediate concern, but that is not stopping investors from questioning the management on its strategy. In an interview to BT TV, LIC Chairman M.R. Kumar said that while the insurance behemoth has not reduced its exposure in the Adani Group (less than 1 per cent of its total assets under management adding up to around Rs 36,000 crore) after the Hindenburg report, it wants the embattled conglomerate to “throw some light on what is happening in the market”. “We will be calling them [the Adani Group management] sometime just to know the business profile and what they are planning to do and how are they planning to manage the whole thing,” said Kumar while adding that the investment was “just a drop in the ocean”.

A point to note here is that Adani Enterprises’ Q3FY23 results have been outstanding—consolidated total income growth of 42 per cent, Ebitda growth of 101 per cent, and profit of Rs 820 crore compared to a loss of Rs 12 crore in Q3FY22. Other group companies’ Q3FY23 results have been mixed. Adani Ports & SEZ recorded consolidated revenue growth of 17 per cent, but profits fell 16 per cent. Adani Power’s revenues rose 45 per cent, but net profit plunged 95 per cent. And Adani Green’s revenues grew 53 per cent, and profits also doubled. Still, the companies’ shares are on brittle ground, and it will take a while for things to return to normal.

So, let’s get back to our original question: Will Gautam Adani survive Hindenburg?

The market’s general assessment is that he will, but the bruise will last long and need special treatment. For one, Adani will need to get realistic about his ambitions—he has reportedly halved the growth target to 15-20 per cent for FY24 and might hold back on fresh capex for some time. For another, the markets will have to pare expectations around the valuations of Adani stocks in the days ahead. And for yet another, lenders and regulators too have to draw lessons from this saga to strengthen lending, surveillance and corporate governance practices.

The cat appears not to have exhausted his nine lives. Not yet.