Adani Contagion Spreads As Citi Halts Margin Loans On Debt

Indian billionaire Gautam Adani’s corporate empire is crumbling. A deeper selloff forced Adani Enterprises Ltd. to pull a stock sale in the final minute. Two banks have rejected bonds tied to Adani companies as collateral for client trades. And the turmoil has pushed MSCI India Index to the brink of a technical correction. 

Adani Enterprises plunged 27% on Thursday in Mumbai trading after it was revealed late Wednesday that it abandoned a $2.4 billion follow-on share sale. Today’s losses added to a 28% tumble in the previous session.

The decision to pull the share offering comes as more than $100 billion in market cap has been wiped out in Adani group’s stocks following a scathing report from Hindenburg Research last Tuesday. Dollar bonds tied to the companies are also plunging into the distressed territory, raising the risk of default. 

Yesterday, Bloomberg reported that Credit Suisse designated a zero lending value for bonds sold by Adani Ports and Special Economic Zone, Adani Green Energy, and Adani Electricity Mumbai. Now Citi’s wealth management arm has done the same. 

The meltdown in Adani shares has significant implications for Indian stocks:

“This is potentially a bigger problem for Indian equities, which have done so well during the pandemic as China pursued its Covid Zero policy.”

“The long-term ramifications could be quite negative,” said Peter Garnry, head of equity strategy at Saxo Bank A/S in Hellerup, Denmark. 

Bloomberg added: 

The implosion of the Adani companies, which accounted for almost one out of every $10 invested in Indian stocks at the group’s peak in September, has provided a catalyst for investors complaining about the nation’s expensive valuations to trim their holdings. The fallout is likely to make it harder for other Indian corporations to raise funds, put them under increased regulatory scrutiny, while also testing the faith voters have in Prime Minister Narendra Modi.

The turmoil has helped push MSCI India Index to the brink of a technical correction. 

Meanwhile, global funds have yanked a net $2 billion out of Indian equities in the three days through Tuesday. Funds are selling now, and asking questions later. 

“The Adani-related headlines are generating a high level of negative attention, which could dampen investor appetite for Indian stocks,” said Jian Shi Cortesi, who manages China and Asia equity funds at GAM Investment Management in Zurich.

One major risk we see is the deterioration in access to financing for Adani companies, some of which are highly leveraged. 

Even after the latest slide in Adani group shares, Bloomberg Intelligence’s Nitin Chanduka believes there is more downside ahead.