- Over the past few years, one of the most amazing success stories of a business entrepreneur turning the organization into a world-famous entity catapulted Gautam Adani led Adani group into the top league. Every Indian rejoiced in the mindboggling achievements of the Adani group whose stocks kept soaring into dizzying heights in double-quick time. Most notably, the group did grow exponentially even during the pandemic despite the restrictions imposed on mobility. And the personal wealth of Gautam Adani scaled Himalayan heights overtaking some of the most established billionaires and catapulting him to the top 3 richest individuals in the world. And then the Hindenburg report emerged abruptly applying brakes on Adani’s growth story.
- As you are aware, Hindenburg is a short-seller investment research firm based in New York City that brought out a damning report on the corporate governance and fraudulent measures adopted by the Adani group. And the report has succeeded in violently shaking up the Adani group’s share prices as also the reputation built over the years. The mayhem on the stock exchange continues. The day after Adani Enterprises decided not to go ahead with its fully subscribed follow-on public offer (FPO), its shares closed lower by 27% at Rs 1,565.30. It’s now around half the floor price of the FPO. In all, seven listed companies of the Adani group have lost more than $100 billion in market value since January 24.
- Against the backdrop of these developments, India’s regulators and politicians swung into action. The resultant outcome is the Parliament had to be adjourned over the issue. Further, RBI has asked banks about their exposure to Adani firms, Sebi is also active and NSE has put some Adani firms under additional surveillance. These measures were needed but what about the checks and balances that should have been there in the first place before the report unearthed damning corporate practices? Indian conglomerates now have both business and financial links with overseas markets. Adani group firms have raised debt overseas and over the last few days, the price of some of the debt securities has fallen sharply.
- Worryingly, some of the Adani group debt securities are no longer accepted as collateral for trading. The fallout of such an environment will be felt by the group’s firms as it’s bound to affect both the flow of credit and its cost. Importantly, there’s also a risk that negative perceptions may impact other Indian firms that have raised debt abroad. Conglomerates act as a link between different financial jurisdictions. Thus, Indian regulators need to get on top of the Adani situation before election season politicking leads to unintended consequences. Panic undermines financial stability. The longer this plays out at a political level, the greater the risk of ill-conceived interventions to neutralize the fallout. It’s a test for the Indian regulatory authorities as well.