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Adani Scraps Share Sale After Market Rout

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Indian billionaire

Gautam Adani

‘s flagship company reversed course and canceled an up-to-$2.5 billion share sale after its stock tumbled as the conglomerate struggles to contain the fallout from fraud allegations by U.S. short seller Hindenburg Research.

“Given these extraordinary circumstances, the company’s board felt that going ahead with the issue would not be morally correct,” the company said in a statement Wednesday.

The share sale emerged as a test of Mr. Adani’s ability to raise capital and fend off allegations of Hindenburg, which said the company had manipulated its share price among other things. Mr. Adani’s companies had soared in value and borrowed aggressively to fund its growth, making its ability to raise capital important for the company’s future.

Adani Group’s share prices have been on a downward slide since the report’s release. The seven companies listed in India bearing Adani’s name have now lost the equivalent of $85 billion in combined market value since last Tuesday.

All of their share prices declined on Wednesday. Adani Enterprises fell by more than a quarter, while the others dropped between 2% and 20%, in some cases by the maximum amount allowed by India’s stock exchanges.

Mr. Adani, whose wealth ballooned alongside the rise in value of his listed companies over the past few years, has also seen his fortune take a hit from the row with Hindenburg. He was ranked as the world’s second-richest person in September 2022, but has since dropped to 10th place on the Bloomberg Billionaires Index, with a net worth of $84.5 billion.

The offering had originally been priced below Adani Enterprises’ share price, but the steep losses after Hindenburg’s allegations dropped the price beneath the offering price throughout most of the offering. That meant investors could have bought shares more cheaply in the market than in the offering. The stock closed on Wednesday nearly a third below the base price of the follow-on public offering.

A last-minute flurry of subscriptions helped the deal end up being slightly oversubscribed. Individual investors largely stayed away, bidding for only 12% of the shares available to them, according to exchange records.

The company was meant to price the deal Wednesday, according to its regulatory filings. It planned to use some of the proceeds to fund capital expenditures for green-energy projects, expressway construction and airport improvements. It also intended to repay some debt. Those who have subscribed to the offering can expect refunds, Adani Enterprises said in the statement.

Last week, Hindenburg published a scathing report that Mr. Adani had engaged in stock manipulation and malpractices across his companies over decades. The 60-year-old industrialist hasn’t personally addressed the allegations so far, but his conglomerate has criticized the short seller and its motives and issued a lengthy rebuttal to Hindenburg. Adani Group had said that the report’s publication was timed to scupper Adani Enterprises’ follow-on public offering.

Two co-leaders of the offering were entities named in the Hindenburg report, a brokerage called

Monarch Networth Capital Ltd.

in which Adani Properties Private Ltd. is a shareholder, and another entity called Elara Capital (India) Private Ltd., which operates two Mauritius-based funds with most of their holdings in Adani company shares.

Similarly, several of the participants in the anchor book of the offering had personnel and structures in common with various offshore entities highlighted in Hindenburg’s research.

For much of the past week, market participants have been watching for signs of contagion from the selloff in the Adani companies’ stocks and bonds on the broader capital markets. India’s stock market performed significantly better than most Asian countries last year, but a run-up in stock valuations and outflows from foreign investors in 2022 have clouded its outlook for this year.

India’s major stock benchmarks were little changed on Wednesday, after the country’s finance minister unveiled the government’s fiscal budget that included tax cuts and a notable increase in capital spending.

Indian banks are among the major creditors to the Adani companies, which funded much of their rapid expansion in recent years with debt. Big drops in the companies’ dollar bond prices have sent their yields sharply higher, indicating that investors are worried about their default risk, analysts said.

“It’s a bit of a question mark on India’s corporate governance, transparency and corruption,” said Charu Chanana, market strategist at Saxo Markets, referring to the recent furor over the Adani Group. She said in a note earlier this week that the dispute between the conglomerate and Hindenburg has alarmed foreign investors and could negatively affect their confidence in India.

But with other major economies potentially slipping into mild recession, and China’s growth outlook still uncertain, many investors are still focused on the broad underlying factors supporting India’s growth, Ms. Chanana added.

“This development remains quite fluid, therefore it’s hard to draw a conclusion related to its spillover effect on other industries,” said Vivian Lin Thurston, a portfolio manager at Chicago-based William Blair Investment Management. She said the firm is continuing to monitor how the row between Adani Group and Hindenburg evolves.

Write to Weilun Soon at [email protected]

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