The crisis of confidence plaguing Gautam Adani has taken a sudden turn for the worse, with a record 28 per cent plunge in his flagship company’s stock raising questions over the extra collateral he needs to cover loans.

Adani Enterprises plummeted in afternoon trading in Mumbai after Bloomberg reported Credit Suisse Group has stopped accepting bonds of Adani Group’s firms as collateral for margin loans to its private banking clients. Banks including Barclays had earlier asked for more shares to cover a US$1 billion loan.

With the rout in the group’s stocks triggered by short seller Hindenburg Research’s fraud allegations reaching US$92 billion on Wednesday (Feb 1), the risk is that more financial institutions will start to scrutinise their exposure to the indebted conglomerate. Without a dramatic upturn, investors who bought into a recently completed US$2.5 billion stock sale by Adani Enterprises may be staring at deep losses.

“The problem now is that the dynamics are becoming a self-reinforcing negative feedback loop and investors are now just dumping the shares and asking questions later,” said Peter Garnry, head of equity strategy at Saxo Bank.

The swift decline in stock prices poses a serious threat to the conglomerate after a rapid expansion into industries from green energy to media. Adani on Friday added about US$300 million worth of shares for the US$1 billion loan made by a group of banks, according to people familiar with the matter.

Credit Suisse’s private banking arm has assigned a zero lending value for notes sold by Adani Ports and Special Economic Zone., Adani Green Energy and Adani Electricity Mumbai, according to people familiar with the matter. It had previously offered a lending value of about 75 per cent for the Adani Ports notes, one of the people said.

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Adani Power and Adani Ports had the highest portion of shares pledged as of December, according to Bloomberg Intelligence. Adani Power slid by 5 per cent for a fifth session on Wednesday while the ports unit’s stock sank 19 per cent, the most on record.

“The Adani family might need to pledge more shares given the drop in share prices, though they could still maintain a healthy headroom with the portion pledged at no more than 40 per cent, based on our calculation,” Sharon Chen, credit analyst at Bloomberg Intelligence, wrote in a note.

Wednesday’s equity rout meant the billionaire tycoon got little reprieve for the successful last-minute completion of Adani Enterprises’ share sale, which was India’s largest follow-on offering. At least two of India’s biggest business families, including Sajjan Jindal and Sunil Mittal, are said to have participated in it, in a sign of solidarity with Adani.

Interest from retail investors – who Adani was hoping to attract – was notably weak. The offering attracted overall bids for 1.12 times the amount of shares available, less than six out of seven jumbo-sized sales analysed by Bloomberg.

“Caution on Adani group stocks has increased after the news on action taken by Credit Suisse,” Sameer Kalra, founder of Target Investing in Mumbai, said. “This can put a financing hurdle for the group’s further growth.”

“The important thing to watch now post allotment is what level of holding period the investors are willing to have on these shares,” Kalra said. “Having a few investors getting most of the allotment, there is a risk of some portion being sold immediately.”

The storm engulfing Adani has become a test case for India as well, with Hindenburg’s allegations raising questions over the country’s corporate governance, while Adani himself has called the report an attack on India itself. It has turned the conglomerate into a drag on the nation’s stock markets, an abrupt reversal from last year when Adani-linked stocks helped drive a world-beating rally.

Market watchers see the fight between Adani and Hindenburg continuing, after the two traded barbs earlier in the week. The Indian conglomerate has called Hindenburg’s report “bogus,” threatened legal action and said it was “a calculated securities fraud” in its 413-page rebuttal, which the short seller said ignored all its key allegations and was “obfuscated by nationalism.”

“Cash generation at Adani companies remains poor while they have traded at extremely high multiples. So, their servicing capability of debt can be impaired if things do not go as per the plan,” said Amit Kumar Gupta, CIO of New Delhi-based Fintrekk Capital. “Now the issue is if stock prices don’t go up, this leverage is detrimental to the group.” BLOOMBERG