Adani Woes Spark India’s Contagion Fears: Credit Alerts Sound
On Friday, worries of financial contagion escalated in India as the predicament of the Adani Group became more severe. Moody’s, a rating agency, cautioned that the conglomerate may face difficulties in obtaining capital and S&P downgraded the outlook for two of its operations.
As a result of the turbulent events in India’s legislative houses, they were adjourned on Friday. This was prompted by calls from some politicians for an investigation following a significant drop in the stock market values of companies owned by Indian tycoon Gautam Adani.
The trigger for the current crisis was a report from Hindenburg Research last week, where the US-based short-seller accused Adani Group of stock manipulation and excessive debt. Despite Adani Group’s denial of any wrongdoing in a comprehensive response, its shares have continued to drop. The latest development shows that India’s Ministry of Corporate Affairs has initiated a preliminary examination of Adani Group’s financial statements and regulatory submissions from previous years, as reported by two government officials to Reuters.
Although the shares of Adani companies had a brief recovery, the seven listed companies have still lost over $100 billion, which is nearly half their market value, since the publication of Hindenburg’s report on January 24th. Moody’s has expressed concern that the sharp decline in shares may affect Adani Group’s ability to raise capital, while Fitch sees no immediate impact on its ratings.
Moody’s stated in a statement, “These unfavorable developments are expected to reduce the group’s capacity to raise funds to finance committed capital expenditures or refinance maturing debt in the next 1-2 years. We acknowledge that some of the capital expenditures can be postponed.”
This crisis represents the biggest challenge to Adani, a former school drop-out from Gujarat and the western home state of Indian Prime Minister Narendra Modi, both in terms of reputation and business, as the company tries to alleviate investor concerns. Fearing that the turmoil may spread to the broader financial system, some Indian politicians have called for a more extensive investigation, and Reuters reports that the central bank has asked lenders to provide details of their exposure to the group.
According to the Reserve Bank of India, the country’s banking sector is still robust and secure. The State Bank of India stated that it was not worried about its ties to the Adani Group, but any future funding for their projects would be “assessed based on its individual merits.”
Adani Enterprises saw a 1.4% increase in shares after previously dropping 35% to reach its lowest point since March 2021. This drop resulted in a loss of nearly $33.6 billion, a decrease of 70%.
Shares in Adani Total Gas, a partnership with France’s TotalEnergies, decreased by 5% as the company reported limited exposure to Adani.
On the other hand, Adani Ports and Special Economic Zone saw an 8% increase, while Adani Transmission and Adani Green Energy both declined by 10%.
S&P Global Ratings downgraded its outlook on Adani Ports and Adani Electricity to negative from stable, citing the possibility that “investor concerns regarding the group’s governance and disclosures are greater than what is currently reflected in our ratings.”
India’s Secretary for Divestment, Tuhin Kanta Pandey, reassured Reuters that Life Insurance Corp (LIC) shareholders and customers should not worry about their connections to the Adani Group. State-run LIC holds a 4.23% stake in Adani Enterprises and has additional investments, including a 9.14% stake in Adani Ports.
