Adani Group’s Stock Reversal: A Detailed Analysis of the Fallout
By Adani Enterprises Ltd., the flagship part of the group of companies owned by billionaire Gautam Adani, surged up to 25% on Tuesday, reversing some of the heavy losses it had sustained in the wake of a scathing report by U.S. short seller Hindenburg Research.[0] The report alleged that Adani had engaged in “brazen stock manipulation and accounting fraud scheme over the course of decades.” The selloff in the group’s stocks had wiped out over $112 billion of Adani’s personal fortune, erasing his place among the world’s top five wealthiest people.
In a bid to shore up investor confidence, Adani Group said Monday that its promoters, or controlling shareholders, will be paying back loans worth $1.11 billion ahead of their scheduled maturity in September 2024.[1] The loans were secured by stocks in Adani Ports, Adani Green Energy, and Adani Transmission, which have drastically decreased in worth.[2]
Last week's decline in the stock market caused the ratio of put-to-call options on Adani Enterprises, as measured by open interest, to fall to a six-month low. This ratio dropped to approximately two standard deviations below its 24-month average.[3] Data compiled by Bloomberg, based on regression analysis, shows that when the ratio has exceeded this level in the past, there has been a reversal in the shares.[3]
Hedge funds and distressed debt specialists have taken advantage of the situation, scooping up bonds related to Gautam Adani’s business empire as they look to capitalize on falling prices.[4] Oaktree Capital Management and Davidson Kempner Capital Management were among those buying the debt in recent weeks, according to people familiar with the matter.[5]
The Adani Group has denied Hindenburg’s allegations of corporate wrongdoing and threatened legal action, and Adani gave a video speech last week stating that the group’s balance sheet is healthy.[4] However, the market turmoil has raised concerns over potential consequences for the financial stability of institutions such as the Life Insurance Corporation (LIC) and the State Bank of India (SBI), as well as the savings of millions of Indians.[6]
The fallout has been significant and has sparked fears of a contagion across India’s economy and markets. Indian parliament was adjourned for a third day as the opposition sought to draw attention to what they describe as the close ties between Prime Minister Narendra Modi and Gautam Adani.[7]
0. “Adani Enterprises shares rise up to 25% day after group announced pre-payment of loans” Scroll.in, 7 Feb. 2023, https://scroll.in/latest/1043415/adani-enterprises-shares-rise-up-to-25-day-after-group-announced-pre-payment-of-loans
1. “Adani to repay over $1bn in debt early in a bid to halt stock market rout” Markets Insider, 7 Feb. 2023, https://markets.businessinsider.com/news/stocks/gautam-adani-debt-repayment-ahead-of-schedule-stock-market-crash-2023-2
2. “Adani Group Plans $1.1 Billion Loan Repayment After Share Collateral Plummets” The Wall Street Journal, 3 Feb. 2023, https://www.wsj.com/articles/adani-plans-1-1-billion-loan-repayment-after-share-collateral-plummets-11675685596
3. “Adani Group Share Clues Can Be Seen in Surging Options Market” Yahoo! Voices, 7 Feb. 2023, https://www.yahoo.com/now/adani-group-share-clues-seen-003329444.html
4. “Distressed Funds Including Oaktree Scoop Up Adani Bonds” Yahoo Finance, 7 Feb. 2023, https://finance.yahoo.com/news/distressed-funds-including-oaktree-scoop-163241033.html
5. “Distressed Funds Including Oaktree Scoop Up Adani Bonds” Bloomberg, 7 Feb. 2023, https://www.bloomberg.com/news/articles/2023-02-07/distressed-funds-including-oaktree-davidson-kempner-scoop-up-adani-bonds
6. “India: Is the Adani crisis becoming a liability for Modi?” DW (English), 7 Feb. 2023, https://www.dw.com/en/india-is-adani-crisis-becoming-a-political-liability-for-modi/a-64632399
7. “Modi Comes Under India Opposition Fire Over Adani Links” Yahoo News, 6 Feb. 2023, https://news.yahoo.com/modi-comes-under-india-opposition-085450918.html
