Bill Ackman warns banks about liability exposure from the Adani group: Indian banks are serving as the safety net for Adani’s finance.
Investors in Gautam Adani’s most recent $2.5 IPO gave him a thumbs up, but Wall Street is still assessing how exposed he is to the global banking industry.
Adani’s company has developed Fresh Connections with foreign banks as his company has raised. Analysts claim that it has decreased the part of Indian banks in its borrowing data from 86% in fiscal 2016 to 33% in 2022.
Bill Ackman, a billionaire, has issued a warning that the banks participating in the share sale of the Adani Group have too much liability risk and should perform extensive due diligence.
“I don’t see how the bankers for the @AdaniOnline Stock Offering can let it close without doing due diligence on the concerns stated in the @HindenburgRes report,” Ackman wrote in a tweet.
“The Banks simply have too much liability exposure,” he added.
After the US short-seller published the research accusing the conglomerate of improperly using offshore tax havens, shares of seven listed Adani Group companies saw a $10.73 billion decline in market value in India.
Additionally, according to Hindenburg’s report, it had short holdings in Adani Group through its US-traded bonds and non-Indian-traded derivatives.
According to Adani Group, it is considering “Remedial and disciplinary measures” against Hindenburg and has referred to the study as “maliciously nasty, (and) unresearched.”
Soon after, Hindenburg declared that if Adani Group brings a lawsuit to court in the US, it will ask papers as part of the legal Discovery Procedure.
Herbalife’s reaction to our initial 350-page presentation received the same response from Adani. Herbalife is still a Ponzi scheme. The Hindenburg report struck me as being very genuine and thoroughly researched “The head of Pershing Square, Ackman, stated in a tweet.
He continued, “We have not conducted our independent research, and we do not hold any long or short positions in any Herbalife or Adani Firms.
Ackman staked $1 billion against Herbalife beginning in 2012, claiming it was a pyramid scam and in violation of Chinese direct-selling laws.
With the shares of the weight management and nutrition company soaring by more than 150%, he had to sell his short position in Herbalife at a loss in 2018.
Following a damning study by short-seller Hindenburg Research accusing the Indian energy-to-infrastructure giant of stock manipulation and accounting fraud, the Adani Group recently descended into chaos. They even went so far and to claim that Gautam Adani, the richest man in Asia, had “pulled the biggest scam in corporate history.”
It comes at a very bad moment for the Adani Group because the flagship company of the Adani corporate empire, Adani Enterprises, is undergoing a Secondary Share sale. Up to $2.5 billion, or 200 billion Indian rupees, are expected to be raised from the sale.
According to a report referenced in Ackman’s tweet, the sale is still a possibility, and the deal’s bankers are debating whether to lengthen the sale or lower the Issue Price.
Previously, the CEO of Pershing Square Capital Management gave his support for the Hindenburg report, stating that he thought it was quite credible and thoroughly researched. Ackman compared Herbalife, a “pyramid scheme,” to the Adani Group.
Adani has criticized the study, calling it “maliciously nasty,” at the time. In a 413-page rebuttal to Hindenburg, it stated that the latter’s report was “nothing but a lie.” The business stated that it is even considering doing a lawsuit against Hindenburg in response to the claims.
Adani has suffered a $28 billion decline in his wealth in the first month of 2023 as the public conflict between the Adani Group and Hindenburg intensifies.
His ranking on Bloomberg’s Billionaires Index has dropped from fourth to seventh because of it. He continues to claim the title of the richest man in Asia.
Indian banks are serving as the safety net for Adani’s finance.
The range of funding possibilities for Gautam Adani is rapidly shrinking. In just two days, investors devalued the listed companies of the Indian entrepreneur by $48 billion, and his flagship Adani Enterprises lost 19% of its value.
Although the crucial ports-to-power-to-roads conglomerate should be able to control its interest expense, the selloff shatters Adani’s hopes to access international financial markets. As a result, it is reliant on the safety net given by Indian banks.
Several Indian banks with exposure to the Adani Group, including The State Bank of India, Life Insurance Corp., Union Bank of India, ICICI, and Axis.
According to JPMorgan, 0.6% of the group’s industry loans are from Indian banks. According to an Analyst at JPMorgan named Saurabh Kumar, while this may appear minimal, the entire exposure to the Adani Group is still something in the neighborhood of $9 billion.
Ravi Ahuja, a professor at DeSales University, told CNBC that while Adani’s massive debt load is nothing new, the Hindenburg report has forced investors to reconsider how the Indian billionaire interacts with banks.
As a result of the sensitivity of the subject, one official at an Indian state-owned bank who spoke to CNBC said, “We’re not expecting a run on the banks, but if the situation grows worse, outside support will be needed.”
The Jefferies India team reports that while Adani’s reliance on Indian banks has decreased over time, the capital used to launch new infrastructure projects funded by international banks has increased considerably – from 0% to 18% of its overall debt in the last six years.
Besides banks, the conglomerate of Adani would get $381 million from an existing investor, Abu Dhabi’s International Holding Co., but did not specify at what valuation.
IHC CEO Syed Basar Shueb, who has stock in SpaceX, claims that the reason for the company’s involvement in the Adani Group is that it “sees a notable potential for growth from a long-term viewpoint and added value to our shareholders.”
The oversubscribed $2.5 Public Offering and the Abu Dhabi investment stemmed the fall in the stock price for Adani Group.
Analysts have determined that of the seven businesses run by the Adani Group, Adani Green Energy, Adani Power, and Adani Ports have the highest net debt levels.
A banker in Mumbai, India, who wished to remain unnamed because of the sensitivity of the subject, told CNBC that if the share price decline doesn’t halt, Adani may need to consider Financing Options, including talks with Middle Eastern investors who are anxious to diversify.
In 2023, the tycoon intended to get $3 billion in the first three months and raise $5 billion through Equity Markets. The capital that banks already have at risk in ongoing projects would be protected if they extended more credit to the business.
Additionally, it would be a hint that New Delhi is willing to support a businessman who is constructing vital infrastructure while in the middle of a storm.
edited and proofread by nikita sharma