Fears of a financial contagion spread throughout India on Friday as the crisis at Adani Group grew worse. Ratings agency Moody’s warned that the conglomerate may have trouble raising capital, and S&P lowered its outlook on two of its businesses.
In the wake of a significant collapse in the stock market valuations of Indian billionaire Gautam Adani’s enterprises, chaotic scenes in both houses of India’s parliament forced their adjournment on Friday.
A study from Hindenburg Research published last week that accused the Adani Group of stock manipulation and unmanageable debt served as the catalyst for the crisis.
One of India’s largest conglomerates, Adani Group, has responded to the accusations and denied any wrongdoing in thorough rebuttals, but it hasn’t been enough to stop the relentless decline in its stock price.
According to two government sources, India’s Ministry of Corporate Affairs has started a preliminary assessment of the financial statements and other regulatory submissions made over the years by the Adani Group as the latest indicator that the issue is becoming worse.
Even if the shares of the seven publicly traded Adani companies rose after falling sharply earlier in the day on Friday, they have still lost more than $100 billion, or roughly half their market value, since Hindenburg’s analysis was released on January 24.
Although rival credit rating firm Fitch did not immediately notice any impact on its ratings, Moody’s cautioned that the share price decline could affect the Adani Group’s capacity to raise finance.
These unfavorable events are probably going to make it harder for the organization to raise money in the coming one to two years to pay for committed capital expenditures or restructure maturing debt. We are aware that some of the capital expenditures can be postponed, according to Moody’s.
As his company attempts to allay investor fears, Adani, a former school dropout from Gujarat, the western home state of Indian Prime Minister Narendra Modi, faces the toughest reputational and commercial challenge of his life.
Some Indian politicians have called for a wider inquiry amid concerns that the unrest might spread to the larger financial system, and sources told Reuters that the central bank has asked bankers for information regarding their exposure to the firm.
Charu Chanana, a market strategist at Saxo Markets in Singapore, stated on Friday that “contagion concerns are spreading, although remain limited to the banking sector.”
The banking system in India, according to the Reserve Bank, is still robust and stable. The Adani Group’s exposure was not a worry, according to the State Bank of India, but any additional funding for its projects would be “considered on its own basis.”
Shares of Adani Enterprises ended the day 1.4 percent higher after falling 35 percent earlier and reaching their lowest level since March 2021. That low increased its losses from previous week to around $33.6 billion, a decline of 70%.
Adani Total Gas, a joint venture with France’s TotalEnergies, saw a 5% decline in shares after claiming that its exposure to Adani firms was minimal.
Adani Transmission and Adani Green Energy both experienced 10 percent declines, while Adani Ports and Special Economic Zone saw an 8 percent increase.
The danger that investor concerns regarding the group’s governance and disclosures are greater than what we have presently taken into account in our ratings, according to S&P, which also changed its outlook from stable to negative for Adani Ports and Adani Electricity.
According to Tuhin Kanta Pandey, the divestment secretary for India, Life Insurance Corp. (LIC) consumers and shareholders shouldn’t be concerned about the company’s exposure to the Adani Group.
State-run LIC owns a 9.14 percent share in Adani Ports and a 4.23 percent stake in Adani Enterprises, the company’s flagship.
The 60-year-old Adani has recently formed alliances with and drawn investment from international juggernauts as he pursues worldwide expansion in areas ranging from ports to power.
Foreign investors, many of whom are already underweight on India because they believe its stock market to be expensive, are cutting their exposure as a result of the market and financial crisis.
When asked about the market weakness, India’s finance minister, Nirmala Sitharaman, said: “One incidence, however much talked about globally it may be… is not going to be indicative of how well Indian financial markets are managed.”
Key listed Adani companies, according to Hindenburg’s research, had “significant debt,” and shares in the seven listed companies might fall by 85% as a result of what it dubbed exorbitant values.
According to the Adani Group, its enterprises have “consistently de-levered” over the previous ten years, and the report is unfounded.
The market capitalization of the listed Adani companies is currently $107.5 billion, down from $218 billion before the announcement.
Due to this, Indian rival Mukesh Ambani of Reliance Industries Ltd. has displaced Adani as the richest person in Asia, and Adani has fallen to the 17th position on Forbes’ list of the world’s richest individuals.
Behind Bernard Arnault and Elon Musk, he had come in third.
