[ad_1]
Over the course of 10 dramatic days, Gautam Adani – the self-made Indian billionaire with a sprawling empire that made him the world’s third-richest man – saw more than half of his fortune disappear.
His Adani Group lost more than $110 billion in market value as investors jumped ship, and the 60-year-old tycoon’s personal fortune also fell by about half, dropping him from the top 3 on Forbes’ billionaires list.
The reason? A small US short-selling firm called Hindenburg Research accused the Adani Group of fraud and stock manipulation, triggering a market collapse and forcing the company to abandon a $2.5 billion stock offering.
The Adani Group has vehemently denied the allegations, but the crisis engulfing India’s second-largest conglomerate continues to deepen – both economically and politically.
Here are some key takeaways from the fallout:
What are the allegations against the Adani Group?
At the end of January, New York-based Hindenburg Research took investors by surprise and dropped a scathing report accusing Adani Group of “brazen” accounting fraud and stock manipulation, deeming it “the biggest con in the history of the company.”
The report leveled 88 questions on the Indian conglomerate, asking about the group’s debt level, accusing it of using known tax havens, and admitting the ultimate goal to inflate the market value of Adani’s listed company.
The short-selling company stands to gain from the subsequent fallout, having taken a short position – or betting that the stock will fall – in some of Adani’s internationally traded bonds and derivatives.
Executives at the Adani Group objected, denying the allegations and publishing a detailed 413-page rebuttal. He called the report “nothing but a lie” and a “calculated attack on India” himself.
“The group has always been in compliance with all laws, regardless of jurisdiction, and maintains the highest standards of corporate governance,” chief financial officer Jugeshinder Singh said in a video published on January 25 on YouTube.
“I don’t think anyone expected such a spectacular collapse [Adani] stock prices,” said Hemindra Hazari, an independent market analyst based in Mumbai.
“But everyone in the market knows that the big growth in the price is unnatural.”
Adani Group shares have risen in value by 2,500 percent in the past five years – gains that Adani often equates with India’s rapid economic growth, intertwining its success story with that of its country.
Who is Gautam Adani?
Prior to this latest issue, Adani was listed as the third richest person in the world by Forbes, with a personal net worth of US$120 billion. After losing about half of that, he barely made the Top 20.
A university graduate and first-generation entrepreneur, Adani founded his company about 35 years ago and first built his fortune in coal trading and mining, before branching out into construction, power generation, port and airport operations, defense equipment manufacturing and media exposure. company.
Adani Group – a conglomerate of seven public companies – is among the largest national portfolio holdings of renewable energy assets in India and seven airports in the country, including Mumbai International.
Critics say the billionaire also benefits from close ties to India’s prime minister, Narendra Modi, who, like Adani, hails from the western Indian state of Gujarat.
How will the market react?
Investors were shocked when the US report came out and immediately started raising stocks, as the company’s fortunes improved.
“The market has gone with the Hindenburg report and the clarification from the Adani Group has not reduced investors’ fears,” said Hazari, referring to the fact that the company’s bonds are trading at 70 cents to the dollar – “bankruptcy and junk bond valuations.”, according to analysts.
“Foreign investors interested in debt have shown what they think about the company.”
While Adani’s shares fell, the Nifty 50, the benchmark index of India’s National Stock Exchange, was down just one percent – a sign for Hazari that “the market doesn’t see this as an India problem,” but “an Adani problem.”
India’s market regulator, SEBI, did little to calm nerves, saying only, without specifically referring to the Adani Group, that the regulator is committed to making the stock market function “transparent, efficient.”
The statement is a problem for Amarjit Chopra, former president of the Institute of Chartered Accountants of India.
“I’m a little disappointed,” he told CBC News. “The market regulator needs to see where the funds are coming from.”
Indian billionaire Gautam Adani has seen his net worth plummet after allegations of fraud led to a drop in share prices for his conglomerate, the Adani Group. Now, protesters and opposition parties are calling for an investigation.
Hazari echoed those sentiments, saying that the companies involved appear to be so close to the ruling party that it is the regulator’s job to speak out.
“If the regulator doesn’t appear to be public or do something, then that will be a major concern for the whole market,” he said.
Allegations surrounding the company and its founder’s relationship with the government may have had more of an impact, though, Hazari suggested.
“Creditors will also … now be more cautious when certain groups of companies are considered close to the government.”
What are the political consequences?
Hundreds of opposition party members were also concerned, taking to the streets in massive protests to demand a full investigation into the allegations against the Adani Group.
Some protesters stormed police barricades and were detained, while others set fire to briefcases emblazoned with pictures of Adani and Modi.
Earlier this month, Indian lawmakers disrupted parliamentary sessions in both houses of Parliament for several days to call attention to allegations against the Adani Group.
“There is no talk of an investigation,” the leader of the opposition Congress Party, Rahul Gandhi, told reporters. “It is clear that the prime minister is protecting it [Adani].”
Modi’s ruling Bharatiya Janata Party rejected the claims, calling them “wild allegations.”
What happens next?
The sudden and dramatic decline in share prices raises questions about whether Adani Group companies can cover their costs going forward, with their heavy debt burden.
After the conglomerate announced it would pay off $1.1 billion in debt ahead of schedule, in an effort to calm investors, Adani shares rebounded this week. The loan is not due until September 2024, and includes a stake in Adani’s port business.
“Confidence will certainly be shaken, there’s no doubt about it,” Chopra said. But he does not believe the Indian economy will be affected long-term.
“It’s not [the case] that India is Adani and Adani is India,” he said. “India is bigger.”
Chopra further believes that the economic uncertainty will be short-lived because of the type of investment and infrastructure projects controlled by the Adani Group – valuable, stable assets, including various ports and cement factories.
“Will people avoid Adanis? No, it won’t happen.”
[ad_2]
Source link