Economic Insider

Gautam Adani lost $100m in a matter days

Indian billionaire Gautam Adani tried to make investors feel better after his company surprised everyone by canceling the sale of shares.

Wednesday, Adani Enterprises said it would give investors the $2.5 billion (£2 billion) it got from the sale.

Mr. Adani has said that the decision will not change “our current operations or plans for the future.”

The move comes at the end of a busy week that started with a US investment firm accusing Adani Group firms of fraud.

But in the last few days, the market value of the group’s companies has dropped by $108bn.

According to Forbes, Mr. Adani has lost $48bn of his own money and is now the 16th richest person in the world.

What went wrong for Adani Group?

About two weeks ago, Mr. Adani was the third richest person in the world.

Shares of Adani Enterprises, the biggest company in his ports-to-energy conglomerate, were set to go on sale on January 25 in India’s biggest secondary share offering.

But the day before that, an investment firm in the US called Hindenburg Research released a report in which it accused the conglomerate of “brazen” stock manipulation and accounting fraud over a long period.

Hindenburg is an expert at “short-selling,” which means betting against a company’s stock price in hopes that it will go down.

The Adani Group called the report “a malicious mix of selectively false information and old, unfounded, and disproven claims,” but that wasn’t enough to calm investor fears.

Mr. Adani’s group comprises seven companies traded on the stock market. These companies work in various fields, such as airports, commodities trading, ports, utilities, and renewable energy. Several Indian banks and state-owned insurance companies have given or invested billions of dollars in companies that are part of the group.

So, was that it?

No. As the market crash continued, the Adani Group sent out a detailed response that was more than 400 pages long. It called the Hindenburg report a “calculated attack on India” and said it was a “reckless act of sabotage.”

It said it had followed all local laws and given all the required information to the government. It also said that the report was made to help Hindenburg “make a huge amount of money through illegal means at the expense of many investors.”

On the other hand, Hindenburg stood by the report and claimed that the conglomerate had failed to answer 62 of their 88 questions specifically.

The market’s response

When the Adani Enterprises stock sale started on January 25, it didn’t get much attention. By the end of the second day, only 3% of its shares had been bought by small investors.

But foreign institutional investors and corporate funds helped the group. On January 30, Abu Dhabi’s International Holding Company, which is backed by a member of the UAE royal family, invested at least $400 million in the share sale.

Bloomberg said that Indian business tycoons Sajjan Jindal and Sunil Mittal also bought shares in the sale as individuals in a last-minute push.

Analyst Ambareesh Baliga told Reuters after the sale of shares that the group had not reached its goal to “broad base the shareholding.”

Shares of the different companies in the group also kept going down.

So, what now?

Bloomberg and Reuters and say that India’s central bank has asked the country’s lenders for information about how much risk they have with the group.

In his response to India’s exchanges, Mr. Adani said that the group’s balance sheet is very healthy, with strong cashflows, safe assets, and a perfect track record of paying off debt.

But Edward Moya, an analyst at the brokerage OANDA, told Reuters that the suspension of the share sale was “troubling” because it was supposed to show that the company is still trusted by its high net-worth investors.

The wealth arm of the American investment bank Citigroup has stopped taking Adani group securities as collateral for margin loans, and Credit Suisse has stopped taking the group’s bonds. Moody’s unit ICRA said it was keeping an eye on how recent events would affect Adani Group stocks.

But Vinayak Chatterjee, the founder and managing trustee of the Infravision Foundation, was optimistic and called the current situation “a short-term blip.”

Hemindra Hazari, an independent research analyst, said he was surprised that they hadn’t heard anything from SEBI or the government yet.

“They should have said something to put investors’ minds at ease,” he told the BBC.

It has also caused a political fight.

Read Also: Adani Enterprises cancels share sale

People think that Mr. Adani is close to Prime Minister Narendra Modi. Opposition politicians have been saying for a long time that he has used his political connections to his advantage, which he denies.

On Thursday, groups against the government asked for a discussion in parliament about how the fall in the  company shares could hurt Indian investors. They have also asked for Hindenburg’s claims to be looked into.

Opinions expressed by Economic Insider contributors are their own.