The crisis surrounding the Adani group has intensified on Monday, leading to arrests and protests in India. Members of the country’s main opposition party were detained by police during demonstrations, and parliament was suspended due to disruptions.
A Jan. 24 report from U.S.-based short-seller Hindenburg Research triggered the crisis as it accused the Adani group of stock manipulation, unsustainable debt, and use of tax havens. The Adani group has denied the allegations and issued detailed rebuttals, but shares have continued to fall.
Who is Gautam Adani?
Gautam Adani’s journey to become one of the world’s wealthiest individuals began with his entry into the diamond trading business at the young age of 20. By 1988, he had established a successful commodities import and export firm. Today, Adani chairs the Adani Group, a conglomerate with diverse interests ranging from ports and airports, real estate, and energy.
Adani’s net worth, estimated at $137.4 billion, had been significantly driven by the remarkable growth of his group companies in the last two years, with a market capitalization increase of over five times. This growth, which is a common metric for determining the wealth of a promoter, is subject to fluctuations in the market.
Despite a recent dip in Adani’s fortune, with a loss of $110 billion in market value following the Hindenburg Research report, the businessman ended 2022 as the world’s third-richest person with a net worth of $119 billion.
Market value loss tops $110 billion
Adani shares continued to decline, with the conglomerate’s cumulative market value loss exceeding $110 billion. The fallout from Hindenburg’s report led to the abandonment of a $2.5 billion share sale, and Adani’s chairman Gautam Adani lost his title as Asia’s richest person. Despite attempts by regulators and the government to calm investors, the stock market rout triggered credit ratings warnings and a drop in shares for Adani companies.
Parliament adjourned for third consecutive day
Both houses of India’s parliament were adjourned for the third consecutive day, with demands for an inquiry. Members of the Congress party gathered to protest across the country, including outside offices of LIC and SBI, which have exposure to Adani group companies. The RBI said the country’s banking system remains resilient, while India’s market regulator stated the country’s financial markets remain stable. SBI said it was not concerned about its exposure to the Adani group.
Credit ratings warnings and market drop
Moody’s warned that the Adani group may struggle to raise capital, and S&P cut its outlook on two group companies. Adani Enterprises saw a 9.6% drop, with market capitalization losses of nearly $28 billion. Other Adani companies, including Adani Transmission, Adani Green Energy, Adani Total Gas, Adani Power, and Adani Wilmar, saw a drop of roughly 5%. Adani Ports and Special Economic Zone was the only stock to rise, increasing 1.2%.
The Adani crisis could have wider economic ramifications, especially in Asia, due to the group’s significance in the region and its international partnerships. Moody’s and S&P’s recent credit rating warnings could further escalate investor doubt and erode confidence.
The Indian economy, along with its banking and financial sectors, may also feel the impact of the Adani crisis. Adani has close ties with several state-owned financial institutions such as LIC and SBI. The suspension of the $2.5 billion share sale by Adani Enterprises could also affect the capital market and India’s efforts to attract foreign investment.
The Adani crisis, although mostly limited to the Indian market and Asia, could serve as a warning for global investors. It highlights the need for due diligence and risk assessment before investing in a company or market.
The ongoing Adani crisis significantly highlights the importance of assessing potential risks before investing in a company or market and underscores the need for transparency and accountability in business practices.