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Investors Are Concerned About The Impact Of The Hindenburg Disaster On India's Adani Shares

Investors Are Concerned About The Impact Of The Hindenburg Disaster On India's Adani Shares
Stock price of India's Adani Group of companies fell further in Mumbai on Friday, resulting the total market value of the group dropping to less than $100 billion. This rout in the stock market for the conglomerate happened following a crucial and damning report by US short-seller Hindenburg Research  which ignited a sell off of the company's shares. 
Hindenburg Research called the Indian conglomerate's debt levels and use of tax havens into question. Adani dismissed the report as unfounded and stated that its financials remained strong; however, the ensuing stock market crisis has sparked broader concerns about possible systemic impact.
Lawmakers have called for a broader investigation, and sources told Reuters that the central bank has asked lenders for information about their exposure to the group.
In one of the most significant setbacks for Chairman Gautam Adani, the company postponed a $2.5 billion share sale scheduled for Wednesday, which would have occurred at the height of the rout.
The share price of Adani Enterprises Ltd, the group's flagship company, fell 35% in Friday trading to its lowest level since March 2021. This brings the total loss to nearly $33.6 billion since last week, a 70% decrease.
Adani Ports and Special Economic Zone Ltd fell 14%, while Adani Transmission Ltd and Adani Green Energy Ltd both fell 10%. Adani Total Gas Ltd, a joint venture with TotalEnergies SE of France, fell 5%.
"Contagion concerns are widening, but still limited to the banking sector. Focus remains on further risks of index exclusions," said Charu Chanana from Saxo Markets in Singapore.
S&P Dow Jones Indices announced on Thursday that it would remove Adani Enterprises Ltd from widely used sustainability indices on February 7, making the shares less appealing to environmentally conscious investors.
"One of the big risk factors to watch for now is if more indices remove Adani stocks," said Chanana. "This can result in foreign outflows as funds sell Adani stocks, further aggravating confidence issues."
In its report about the Adani Group, Hindenburg claimed that the key listed companies of the conglomerate had "substantial debt" and added that the shares in seven of the listed firms of the group have an 85% downside because of what it described as sky-high valuations. It also accused the company of stock manipulation.
The Adani Group said the allegation of stock manipulation had "no basis" and stemmed from ignorance of Indian law. Its response stated that over the past decade, group companies have "consistently de-levered".
The seven listed Adani Group companies currently have a combined market capitalisation of $99 billion, down from $218 billion prior to the Hindenberg report.
The drop in share prices represents a dramatic turn of fortune for Adani, who has recently formed alliances with and attracted investment from foreign behemoths as he seeks global expansion in diverse industries such as ports and power.
Adani is also no longer Asia's richest person, falling to 17th in Forbes' list of the world's wealthiest individuals. The 60-year-old was third, trailing Elon Musk and Bernard Arnault. Mukesh Ambani of Reliance Industries Ltd, an Indian rival, is now Asia's richest person.
After plunging on Thursday, the prices of US dollar bonds issued by Adani Group entities edged higher on Friday.
Adani Green's bonds due in September 2024 rose about 7 cents to 69.69 cents after falling to a record low of 60.56 cents on Thursday.

Christopher J. Mitchell

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