Fresh reports rock Adani Group

Published 1 September 2023 12:53:51

By Krishna Merchant

MUMBAI, Sep 1 (IFR) - Adani Group's stocks and US dollar bonds fell on Thursday following media reports of alleged stock manipulation by business associates of the Adani family via opaque overseas investment funds.

Documents obtained by the Organised Crime and Corruption Reporting Project, a network of investigative journalists, showed that "hundreds of millions of dollars were invested in publicly traded Adani stock through opaque investment funds based in the island nation of Mauritius", it said. The documents show that the funds were used to trade large amounts of shares in four Adani Group companies between 2013 and 2018.

"In at least two cases – representing Adani stock holdings through Mauritius funds that at one point reached US$430m – the mysterious investors turn out to have widely reported ties to the group’s majority shareholders, the Adani family," said the OCCRP, which shared the documents with the Financial Times and Guardian newspapers.

The investors, Nasser Ali Shaban Ahli and Chang Chung-Ling, are associates of Vinod Adani, brother of Adani Group chairman Gautam Adani, according to the report. An unnamed management company in charge of the investments by the Mauritius funds hired one of Vinod Adani's companies as an adviser, it said.

The documents have been corroborated by people with direct knowledge of Adani Group's businesses and public records from multiple countries, the OCCRP said.

US-based short-seller Hindenburg Research claimed in a bombshell report in January that entities operated by Vinod Adani were involved in stock manipulation. Hindenburg said on Thursday on X (formerly Twitter) that the OCCRP report had closed the loop on its investigations of these offshore funds.

Following the OCCRP report, the shares of Adani Enterprises, Adani Ports and Special Economic Zone, Adani Green Energy, Adani Wilmar, Adani Total Gas and Adani Power fell by 1.5% to 3% on August 31.

Adani Ports and SEZ's US$520m 3.375% notes due July 24 2024 slipped by over one cent to 94.5 cents to yield 10%, Adani Transmission's US$500m 4% August 2026 bonds fell by half a cent to 86.9 cents to yield 9.21%, while Adani Green Energy (UP) Ltd's US$750m 4.375% notes due September 8 2024 fell by 0.5 cents to 94.25 cents to yield 11.2%, according to Refinitiv data.

Adani Group denied what it called "recycled allegations" in a media statement. "These claims are based on closed cases from a decade ago when the Directorate of Revenue Intelligence probed allegations of over invoicing, transfer of funds abroad, related party transactions and investments through foreign portfolio investors." 

Market participants said that a stock correction was due anyway following a recent rally in the group's shares, but that the news will create some regulatory overhang.

"We are seeing a knee-jerk reaction as the shares had rallied quite a bit following the lows in February. The regular credit updates by Adani Group show that the group has enough cash, they are focused on debt repayments and have slowed down on capex growth," said Anish Teli, managing partner at QED Capital Advisors. "The recent report is a trigger for the stocks to consolidate, we will have to wait for the final report by Securities and Exchange Board of India to confirm the findings."

Credit analysts do not expect a fresh hit to bond investor sentiment from the negative headlines.

"The report itself does not affect the fundamental credit profiles of Adani Group companies," said Leonard Law, senior credit analyst at Lucror Analytics Singapore. "We believe the overhang arising from those allegations may be ultimately resolved by the outcome of Sebi’s investigation and the Supreme Court’s judgement."

"Moreover, it is uncertain if there would be onerous penalties (if any at all), even if the Group is eventually determined to have breached some rules by the regulator," he said.

Sebi gets closer

The fresh developments come as India's market regulator is getting closer to completing its investigation of the Hindenburg claims, according to a status report submitted to the Supreme Court on August 25.

Sebi said that it has completed work on 22 out of the 24 transactions which it was investigating. It said it is seeking information from external agencies to determine the course of action regarding the other two transactions.

It said it has investigated 13 Adani Group dealings for possible violations of related-party transaction rules out of the 24 transactions, There are 12 foreign portfolio investors and one foreign entity among the 13 overseas entities which are classified as public shareholders of Adani Group. Sebi said that establishing the economic interests of shareholders for the 12 FPIs remains a challenge as "many of the entities linked to these foreign investors are located in tax haven jurisdictions". The regulator is still making efforts to get details from five foreign jurisdictions pertaining to the shareholders of the FPIs.

Sebi has investigated two transactions for possible manipulation of stock prices in contravention of existing laws, one for possible minimum public shareholding violations and eight for other issues such as possible violation of foreign portfolio investment rules, insider trading, trading before and after Hindenburg report and possible violation of acquisition of shares and takeover rules.

Reuters reported sources as saying that Sebi had examined the two Mauritius-based funds and one Bermuda-based fund cited by OCCRP as part of the larger probe into Adani Group. 

The Supreme Court was scheduled to hear the case on August 29, but it has been postponed again, according to news reports. It is yet to announce a new date. 

Credit note

The status report comes after Adani Group said in a credit note on August 24 that the cash balance at its portfolio of companies increased to Rs421bn (US$5.1bn) at the end of June from Rs403.51bn at the end of March.

The Ebitda for the group for the June quarter was Rs235.32bn, up 42% year on year, on the back of strong growth in its utility, transport and infrastructure businesses.

"The free funds flow plus cash for FY23 was 2.72x against average debt maturity cover of 6.55 years, thus eliminating refinance risks," it said its third credit note since the Hindenburg report. The free funds flow is Ebitda less finance costs paid less tax.

Adani Group has raised Rs309bn at the controlling shareholder level through secondary market transactions since March, which does not include a recent stake sale in Adani Power to GQG Partners. It has deployed equity of Rs2.36trn compared to net debt of Rs1.87trn at the end of the financial year that ended in March.