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Adani Shares Plunge Nearly 23%, Bonds Hit Distressed Levels After FPO Withdrawal

Other group companies – including Adani Transmission, Adani Green Energy, Adani Power, Adani Wilmar – hit their respective lower circuits as the selling pressure in Adani stocks intensified.
Gautam Adani. Credit: PTI/Files

New Delhi: The fallout from accusations of accounting fraud and stock manipulation against the Adani Group continued, with shares of Adani Enterprises plunging by nearly 23% on Thursday, February 2, trading at its lowest since March 2022.

Other group companies – including Adani Transmission, Adani Green Energy, Adani Power, Adani Wilmar – hit their respective lower circuits as the selling pressure in Adani stocks intensified, news reports said.

On the BSE, shares of Adani Ports fell 6.13%, Adani Power (6.13%), Adani Transmission (10%), Adani Total Gas (10%), Adani Green Energy (10%) and Adani Wilmar (4.99%) on Thursday.

Separately, Adani Group company’s bonds fell down to distressed levels. Bonds issued by Adani Green Energy and Adani Ports & Special Economic Zone received maximum beating in the global markets, Mint reported.

Securities are classified as distressed when trading with a yield to maturity of greater than 1,000 basis points, or otherwise 10% above the risk-free rate of return. Yield to maturity is the anticipated rate of return of a bond if it is held to maturity.

As a function of supply and demand, rising bond prices are generally considered a negative development because of the inverse relationship between bond yields and bond prices. When yields rise, prices of bonds already in the market fall.

Some bonds of Adani Ports & Special Economic zone and Adani Green Energy yield more than 30% in global secondary markets, which is much higher than the average investment grade yield of 4.96% and junk bond yield of 8.14%, the report added.

According to Bloomberg, Adani Group has $35 million in bond coupons due this week. The report noted that there has been no suggestion that the companies [Adani Ports and Adani Transmission] would struggle to make the payments, however, traders are alarmed by the crisis that have dumped the group’s debt securities, dragging many of them to distressed levels below 70 cents on the dollar.

A spokesperson for Adani Group didn’t respond to a request for comment to Bloomberg regarding its debt payment plans.

Moneycontrol reported that the Adani Group has lost around Rs 7.44 lakh crore in market value since last week.

Adani Enterprises late on Wednesday, February 1, called off a Rs 20,000-crore follow-on public offer (FPO) after US-based short seller Hindenburg Research alleged that the conglomerate was involved in “stock manipulation” and “accounting fraud”. The share sale had been intended to help reduce the company’s debt levels – which have long been a concern – and broaden its shareholder base.

Also read: A Journalistic History of the Adani Group

The Adani Enterprises board said it had decided not to proceed with the share sale “in the interest of its subscribers” and all payments would be refunded. The company added that going ahead with the issue “would not be morally correct”.

Adani may have started a confidence crisis in Indian shares and that could have broader market implications,” Ipek Ozkardeskaya, senior market analyst at Swissquote Bank, told Reuters.

Since Hindenburg’s report on January 24, Adani Group companies have lost nearly half their combined market value. Adani Enterprises – described as an incubator of Adani‘s businesses – has lost $24 billion in market capitalisation, the news agency reported.

Adani’s ranking on the billionaires list also declined from the third position to 16th. His net worth almost halved to $66 billion in a week, as per Forbes’ list.

The selling spree in Adani stocks have raised concerns on the possibility of an impact on India’s financial system. The Reserve Bank of India has asked banks for details of their exposure to the Adani Group, government and banking sources told Reuters and CNBC-TV18 on Thursday. CNBC-TV18noted that it is standard practice for the RBI to seek information in such cases as central databases may not have the latest information, especially on pledged shares.

Indian banks were exposed to about 40% of the $24.5 billion of Adani Group debt in the fiscal year to March 2022, according to global brokerage firm CLSA’s estimates, the Reuters report said.

“We see the market is losing confidence on how to gauge where the bottom can be and although there will be short-covering rebounds, we expect more fundamental downside risks given more private banks (are) likely to cut or reduce margin,” Monica Hsiao, chief investment officer of Hong Kong-based credit fund Triada Capital, told the news agency.

Meanwhile, Citigroup‘s wealth unit has stopped extending margin loans to its clients against securities of the Adani Group, Reuters reported, citing a source in know of the matter. “In recent days, we have seen a dramatic price drop of Adani issued securities,” the source said, quoting a Citigroup internal memo. “Stock and bond prices have plummeted following the negative news around the group’s financial health.”

Earlier, Bloomberg reported that Credit Suisse had stopped accepting bonds of Adani Group companies as collateral for margin loans to its private banking clients.

Sensex gained 224.16 points, or 0.38%, to close at 59,932.24, while the Nifty was down six points, or 0.03%, at 17,610.40.

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