By Kane Wu and Davide Barbuscia
HONG KONG/NEW YORK (Reuters) – India’s Adani Group could have passed a key test by raising $2.5 billion within the face of a short-seller attack, but its response to the allegations and the consequence of regulatory probes will shape its prospects, analysts and investors say.
A lot of the conglomerate’s shares dropped on Wednesday, extending losses to $84 billion after Hindenburg Research’s report last week alleged improper use of offshore tax havens and flagged concerns about high debt.
The port-to-property group, led by Gautam Adani, certainly one of the world’s richest people, has denied the allegations and called them baseless, adding it has at all times made the obligatory regulatory disclosures.
Adani’s latest fundraising was critical, not simply because it’s going to help cut the group’s 2.2 trillion rupees ($27 billion) of debt, but additionally since it was viewed as a test of investor faith amid business and reputational challenges.
The completion of the secondary share offering to boost $2.5 billion, India’s largest such deal, alleviates a number of the pressure on Adani’s credibility, said Ken Shih, Hong Kong-based head of wealth management at Saxo Markets.
“But from an offshore investor’s perspective the allegations (made by Hindenburg) … don’t appear to be clearly addressed,” he said.
“There could also be much more organised short sell attacks … given they were unable to obviously squash all remaining concerns and allegations yet. Until that happens there may be blood within the water now and other short sellers might come circling.”
Adani has said Hindenburg’s report was a “calculated attack” on India and its institutions. The U.S. short-seller has said Adani’s “response largely confirmed our findings and ignored our key questions.”
While Adani’s share sale was barely over-subscribed as bids poured in on the last day from foreign institutional and company investors, Indian financial firms stayed away and the response was muted from individual buyers.
The identity of the institutions that placed orders on the last day has not been revealed, however the 30% anchor portion of the sale attracted investors including Maybank Securities and Abu Dhabi Investment Authority.
Adani didn’t immediately reply to a Reuters request for comment for this story.
Soon after Hindenburg’s report was made public, the Securities and Exchange Board of India (SEBI) decided to review it, adding to the regulator’s own ongoing preliminary investigation into the group’s foreign portfolio investors, Reuters reported on Monday, citing sources.
Australia’s corporate regulator said on Wednesday it will review the Hindenburg report as concerns raised also relate to Adani’s Australian operations.
State-run Life Insurance Corporation, India’s largest insurer, can be reviewing Adani’s response to the scathing criticism and can hold talks with the group’s management inside days to hunt clarifications.
A U.S.-based investor in dollar bonds issued by Adani’s ports and power units said while it will pay “attention” to the data in the following few weeks, the fund would explore adding to holdings if others sell within the event of rankings downgrade.
“We’d get fearful if for some reason they couldn’t borrow more cash or if their money flow becomes insufficient to cover debt service. And people two things aren’t happening,” said the investor, who spoke on condition of anonymity.
Nevertheless, underscoring the nervousness in some quarters, Bloomberg reported on Wednesday that Credit Suisse had stopped accepting bonds of Adani group firms as collateral for margin loans to its private banking clients.
Credit Suisse had no immediate comment.
“The query about what next for the allegations partly depends upon whether SEBI or others take up the investigation,” said Quiddity Advisors analyst Travis Lundy, who writes on investment research network Smartkarma.
Adani Enterprises lost nearly 6% on Wednesday to bring its losses because the Hindenburg report back to greater than $8 billion. The present market price of two,803 rupees can be below the indicative price band for the offering.
“To do one other offering, they are going to have to prove that the last one was successful – either by stock price or by business growth – they usually have a grand plan,” Lundy said.
(Reporting by Kane Wu in Hong Kong and Davide Barbuscia in Recent York; Additional reporting by Anshuman Daga in Singapore; Writing by Sumeet Chatterjee; Editing by Mark Potter)
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