Global index provider MSCI is set to change its weighting on Adani Group shares after reviewing how much the stock can trade freely, in a further setback for the Indian conglomerate reeling from fraud allegations.
MSCI said “certain investors” in the Adani Group “will no longer be designated as free floaters under our methodology” after receiving feedback from “various market participants”.
Any cut to the free float set for Adani Group’s listing would result in a smaller weighting for the stock in the index closely watched by MSCI, prompting outflows as investors tracking the benchmark reduce their holdings.
MSCI defines the free float of a company’s shares as the proportion that is available for purchase on the public market by international investors.
Gautam Adani’s airport-to-energy empire has come under intense pressure and lost more than $100bn in market capitalization after short seller Hindenburg Research accused the group of fraud and share price manipulation.
The wipeout prompted margin calls from lenders, including Barclays, Citigroup and Deutsche Bank, on a $1.1bn equity-backed loan, while France’s TotalEnergies paused a $4bn hydrogen project it had planned with the group.
MSCI said it will implement changes in the calculation of free float shares and the related market capitalization when it released the February index review.
Adani Group shares are included in several MSCI equity benchmarks including India, Asia, emerging market and world all-country stock indexes.
Rival index provider FTSE Russell said last month that Adani index constituents included in the benchmark “will remain eligible under the underlying index methodology”.
Shares in listed company Adani Group sold off after the announcement, with its flagship business Adani Enterprises down as much as 15 percent after posting gains for two straight days.
An Asian equity strategist at one Wall Street investment bank said MSCI would follow the precedent set by previous reviews of various companies and cut free float estimates by half.
“The potential weighting of Adani shares in the index will be cut in half, and passive investors will have to sell to reduce it. [the stocks’] weighted in accordance with the portfolio,” said the strategist, adding that the bank estimated this would generate around $1 billion to $1.5 billion.
The outflows will add pressure on shares of Mumbai-listed companies, which are components of MSCI’s India, Asia, emerging markets and world benchmark of all countries.
The Adani Group did not respond to a request for comment.
Hindenburg’s brief report stated that the Indian business empire used funds residing offshore in Mauritius to hide the Adani family’s ownership of the group’s listed companies, as well as to skirt rules governing the number of shares it could own.
Nathan Anderson, the founder of Hindenburg, said on Twitter after MSCI’s announcement: “We see this as a validation of our findings regarding the parking of offshore shares by Adani.”
The Adani Group, whose shares include Adani Enterprises and Adani Ports account for more than 3 percent of the MSCI India index, denied the claims.