Adani stocks climb after eight-day rout
ADANI Enterprises surged, leading gains in the group’s stocks, after the conglomerate’s founders pre-paid some debt and traders covered short positions.
The flagship’s stock rallied as much as 25 per cent, while three of its peers jumped by their 5 per cent limit in early trading. That helped trim the slump in the group’s market capitalisation to US$112 billion since US-based Hindenburg Research released a report on Jan 24 alleging market manipulation and accounting fraud – claims Adani has repeatedly denied. The loss was US$118 billion as of Monday.
The reprieve came as Gautam Adani and his family prepaid US$1.11 billion worth of debt in a bid to calm a selloff that sparked fears of a contagion across India’s economy and markets. Concerns had grown over the billionaire’s access to funding amid the turmoil, and the scheduled release of several group companies’ earnings on Tuesday (Feb 7) will give investors a chance to assess their financial health.
“The recovery is happening due to a variety of factors: the prepayment, short covering and technicals all are driving it,” said Deven Choksey, managing director at KRChoksey Holdings in Mumbai. “The group is expected to take more corrective actions going forward.”
Adani Ports & Special Economic Zone reported third-quarter net income of 13.2 billion rupees (S$211.5 million) on Tuesday that missed the average analyst estimate of about 15 billion rupees.
The company also said it will repay US$604 million of loans, with the debt payment taking place in the financial year starting in April. It will improve the ratio of net debt to earnings before interest, taxes, depreciation, and amortisation ratio to about 2.5 times, the company said in an earnings statement.
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Adani Green Energy, Ambuja Cements and New Delhi Television are also due to announce results the same day. Adani Transmission jumped by its limit after posting a 78 per cent gain in third-quarter profit on Monday.
Hindenburg’s accusations have propelled long-held concerns about the Adani Group’s debt-fuelled expansion onto the global stage, and opposition lawmakers forced parliamentary hearings to be adjourned for three days as they demanded answers.
Some of Adani’s dollar bonds fell into distressed territory following the criticisms, with debt investors holding initial conversations with financial advisers and lawyers to weigh their options.
“Amid news of prepayment of loans, the rally in Adani group shares looks more of a tactical bounce from oversold levels,” said Nitin Chanduka, a strategist at Bloomberg Intelligence.
Seven of the 10 group stocks were higher on Tuesday. Adani Enterprises’ rally came after the stock tumbled by about half since the explosive report.
The ratio of put-to-call options on the flagship’s stock, as measured by open interest, slid to a six-month low at the end of last week, briefly dropping to about two standard deviations below the 24-month average. Whenever the ratio has breached that level in the past, a reversal in the shares has taken place, according to data compiled by Bloomberg based on regression analysis.
“The volatility levels in the stocks have reduced and swings could narrow further if there are no negative catalysts or new developments,” said Deepak Jasani, head of retail research at HDFC Securities. “The force of selling may reduce and that may give a small boost to prices.”
In the credit market, some dollar bonds issued by the Adani Group of companies clawed back their daily losses. Nine of 15 dollar bonds issued by the group rose, according to data compiled by Bloomberg. The gain was led by Adani Renewable Energy’s debt due in 2039, which jumped 0.9 cents as of 1.34 pm in Mumbai.
Hindenburg Research has alleged that a web of Adani-family controlled offshore shell entities in tax havens were used to facilitate corruption, money laundering and taxpayer theft. The conglomerate has called the report “bogus,” and threatened legal action. Adani gave a video speech last week stating that the group’s balance sheet is healthy.
Investors are keenly watching the group’s actions, with some saying it will take a lot more effort to restore the market’s confidence.
The repayments “can provide some relief, but it won’t be a change of trend, which is down,” said Sameer Kalra, founder of Target Investing in Mumbai. “We need to keep watching how much more repayment happens, how the capex goes.” BLOOMBERG
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