The Adani Group Saga Is Far From Over

It’s been three weeks since Hindenburg, a New York-based short-selling firm, accused Adani Group of “pulling the largest con in corporate history” through stock manipulation, accounting fraud, and other malfeasance. In response to Hindenburg’s allegations, Adani Group issued a 413-page reply calling the short-sellers claims “stale, baseless, and discredited allegations.”

But the allegations have nevertheless had an immediate knock-on effect, with more than $100 billion wiped from the group’s market value, as well as Gautam Adani losing his status as both Asia and India’s richest man. Adani Group also canceled a $2.5 billion share sale, pledging to refund its investors. Adani said that the group’s balance sheet was “healthy and assets robust” in a video statement after the sale was called off, adding that the group has an “impeccable track record of fulfilling our debt obligations”.

This week, India’s markets regulator confirmed in a Supreme Court filing that it would be investigating the allegations and studying “market activity” around the report. The continued scrutiny of Adani group has led many to wonder what will happen next.

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What has the fallout been for the Adani Group so far?

The most obvious fallout of the Hindenberg report has been a loss of confidence in Adani Group from both investors and analysts, who are now keeping an eye on how the stock prices will impact the company’s operations, cash flow, and expansion plans. This means that many of the company’s projects might need to be “heavily scaled back” due to the lack of fundraising, Tim Buckley, the director at Climate Energy Finance, told the BBC.

As lenders feel more cautious about Adani Group, it’s uncertain whether the company will be able to continue funding its projects and acquisitions by borrowing more money, especially since it is already steeped in total debt of nearly 2 trillion rupees ($24 billion dollars) after borrowing heavily from overseas bonds, foreign and Indian banks, and the state-owned insurance firm, Life Insurance Corporation of India.

So far, two big banks, Credit Suisse and Citigroup, have stopped accepting Adani bonds as collateral, according to Bloomberg. Other lenders including Barclays and Deutsche Bank asked for a margin call on a $1.1 billion share-backed loan. Elara Capital Funds, another global investment bank in the U.K. with reported links to Adani, saw one high-profile board director resign earlier this month. Lord Jo Johnson, the younger brother of former British Prime Minister Boris Johnson, told reporters: “I now recognize that this is a role that requires greater domain expertise in specialized areas of financial regulation than I anticipated and, accordingly, I have resigned from the board.” Adani Group has denied having any relationship with Elara Capital.

Still, others, including two European private banks, are continuing to lend against Adani’s debt.

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In other global developments, MSCI, a global index provider, is also set to change its weightings for Adani Group stocks after reviewing how many of its shares can be freely traded.

France’s TotalEnergies paused a planned $4 billion hydrogen project with the group, while Bangladeshi officials have asked for a discount on electricity purchased from Adani’s power, according to a public stock exchange filing. Norway’s sovereign wealth fund also sold its stakes in three Adani Group companies worth just over $200 million. “Since year-end, we have further reduced in Adani companies. We have no exposure left,” Christopher Wright, the fund’s head of ESG risk monitoring, told a news conference.

What will Indian regulators do in response?

India’s market regulator, also known as the Securities and Exchange Board of India, or SEBI, said it would increase its scrutiny of Adani Group’s deals and foreign portfolio investors. It plans to study the Hindenburg report to add to its own ongoing preliminary investigation. “SEBI has been increasingly examining all the transactions that Adani Group has been undertaking in the listed space,” an anonymous source told Reuters. SEBI also asked for disclosures that it usually wouldn’t ask for while looking into possible irregularities over a previous share sale.

The Reserve Bank of India also asked the country’s lenders to submit information about their exposure to Adani Group, with a handful of Indian banks publicly disclosing how much credit they had extended to Adani’s various companies at the end of last year. On Feb. 7, CreditSights published a round-up which found that so far, the risk was “manageable” at the end of last year.

The Indian government, led by Prime Minister Narendra Modi, who is perceived to have close ties to Adani, has largely stayed silent on the matter. The country’s Finance Minister, Nirmala Sitharaman, told reporters that regulators would “do their job” in response to the allegations and insisted that “our macroeconomic fundamentals, our economy’s image . . . none of [it] has been affected”.

In a parliamentary hearing on Feb. 7, Randeep Singh Surjewala, a member of parliament from Congress, India’s main opposition party, questioned the government’s “loud silence.”

“Why is the government avoiding a discussion on the Adani scam? Why are the Finance Minister and PM Modi not coming to the Parliament? Why was the country’s wealth, LIC and SBI’s money invested in Adani’s sinking companies?” he asked.

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What lessons can be learned from the Adani saga?

Aswath Damodaran, a professor at the Stern School of Business at New York University, writes that the Adani allegations have demonstrated that many of the banking and regulatory institutions involved displayed “inertia and indifference” rather than “venality and corruption.”

According to him, stock market regulators in India are driven by the “best of intentions” but are more focused on protecting retail investors—who are most likely to be caught up in scams—than letting them lose their money. Moreover, he argues that Indian banks have historically felt more comfortable lending to family conglomerates like Adani than standalone enterprises because of their large social networks and a widespread perception that having the family’s reputation at stake will force it to repay its loans.

The larger lesson from the Adani story is more about how Adani Group was able to exploit the seams and weakest links to its advantage—especially through green bonds issuances, or ESGs: “In fact, if Adani happens to default on its debt, I hope that it starts with the green bondholders since I cannot think of a group that deserves default more,” Damodaran wrote.

Trinh Nguyen, a Senior Asia Economist at Natixis, also weighed in on Twitter by saying that the Adani Group allegations weren’t a major threat to India itself, since much of Adani’s valuations were owned by the family, who would therefore incur the biggest loss.

She added that the focus on India’s dependence on family-owned conglomerates was a good thing because it meant that corporate governance can improve with more scrutiny and more diversified private investors. “I don’t think we’re looking at any systemic risk here but we also need to analyze this as an opportunity to change for the better,” she wrote.

As India looks to host the G20 later this year, Amitabh Kant, the head of the summit, agreed with this sentiment. He told reporters that the scrutiny on Adani was a lesson for everyone: “We should believe in top-class governance and we should open our books and records to everyone in the world.”