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By Pranav Kiran/Reuters Breakingviews
Bengaluru, December 15: Gautam Adani, one of India’s richest men, is standing tall at the end of a difficult year. Shares in the tycoon’s publicly traded companies went into freefall in January after Hindenburg Research accused his empire of stock manipulation and accounting fraud. Adani denied the allegations calling it a “calculated attack” on India, but the infrastructure king’s disdain for his short-seller could soon give way to gratitude.
The losses were significantly pared back to $64 billion as of Thursday. At one point, the attack had wiped out more than $150 billion in market value from the group’s nine publicly listed companies. Shares of the flagship Adani Enterprises (ADEL.NS) are still 18% lower, but his $27 billion Adani Ports (APSE.NS) and $24 billion Adani Power (ADAN.NS) are up 36% and 89% since Hindenburg’s missive on Jan. 24.
Adani made the most out of the crisis. To shore up investor confidence, it welcomed investors like GQG and Abu Dhabi conglomerate International Holding (IHC.AD) into some of its companies, helping to dilute the family’s tight shareholding. The tycoon also paid off loans backed by stock: only 2.4% of the shares in Adani Ports, for example, remain pledged as of the September quarter, down from 17.3% at the end of December 2022.
The reckoning stress tested concerns about the group’s rapid growth, leverage and valuations. While net debt remains largely unchanged at around $22 billion, EBITDA – a rough proxy for cash flow – has risen, reducing the consolidated ratio from 3.3 times to 2.5 times. The four largest businesses by market capitalisation trade between 89 and 202 times trailing earnings, per LSEG data. While high, those multiples are lower than the 315 to 845 times before Hindenburg made a splash.
Meanwhile, Adani’s blue-chip backers including TotalEnergies (TTEF.PA), Wilmar International (WLIL.SI) and its coterie of global banks including Standard Chartered (STAN.L) and Singapore’s DBS (DBSM.SI) remained loyal. And Florida-based GQG Partners, which made big bets on the conglomerate this year, has seen the value of its investments in five group companies soar this year.
Some questions remain unanswered about the group’s minimum public shareholding, for example, but if violations are found they may attract little more than a fine from the Securities and Exchange Board of India. Perceived shortcomings of the regulator are offset for now, too, by the wider euphoria around Indian stocks trading near an all-time high. The U.S. government’s investment in Adani’s Colombo port project last month is also a helpful endorsement.
The surprise winner from the saga may be India. The industrialist remains the country’s biggest private operator of critical infrastructure like ports and airports. His investments in renewable energy and green hydrogen could help the fifth-largest economy cut its dependence on oil imports. As a result of Hindenburg’s work, disquiet in Mumbai’s financial circles about a group central to India’s growth ambitious is noticeably more muted.
Short-seller attacks can often be terminal. The one aimed at Adani, though, seems to have been invigorating.
Adani group companies’ combined $172 billion market capitalisation as of Dec. 14 was 27% lower than when it was targeted by a U.S. short-seller at the start of the year.
Hindenburg Research on Jan. 24 accused the infrastructure-focused conglomerate led by Gautam Adani of “pulling the largest con in corporate history” including “brazen stock manipulation and accounting fraud” over the course of decades.
Adani dismissed the report as a “malicious combination of selective misinformation and stale, baseless and discredited allegations that have been tested and rejected by India’s highest courts”. It added the short-seller’s campaign was a calculated attack on India and its growth ambition.
(Editing by Una Galani and Thomas Shum)
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