Adani bonds rally as billionaire moves to prepay loans in a bid to restore confidence

A rout has erased half of the Indian conglomerate's market value since the sell-off began last week after allegations of fraud by US short seller Hindenburg

Adani Group share numbers in Mumbai on Thursday. The group's businesses have lost more than $100bn in a week. Bloomberg

Adani Group dollar bonds rallied on Friday as embattled billionaire Gautam Adani was said to be in talks with creditors to prepay some loans in a bid to restore confidence in his business empire.

The notes also pared losses from earlier in the week as Goldman Sachs Group and JP Morgan Chase told some clients that Adani bonds can offer value due to the strength of certain assets.

Adani debt has hit a floor in the short term, Goldman Sachs trading executives said in a call Thursday, according to sources.

All 15 dollar debt securities of the group advanced on Friday, partly helped by news that Adani Ports & Special Economic Zone had made coupon payments on schedule.

The 2031 notes sold by Adani Ports, one of those which had a payment date on February 2, climbed 3.7 cents on the dollar to 67.7 cents as of 10.50am in Hong Kong.

Adani Green Energy’s dollar bond maturing in September 2024 rose 6.8 cents on the dollar to 70.4 cents, on course for its biggest daily increase on record, according to Bloomberg-compiled data.

Even so, some on the conglomerate’s dollar debt is trading at below 70 cents, a level which is typically considered distressed.

Financial institutions from New York to London and Tokyo are dissecting their exposure to the empire of Mr Adani, who was Asia’s richest man only a few days ago.

Billionaire Gautam Adani during a video speech on monitors in Mumbai, India, on Thursday. Bloomberg

The billionaire’s interests, which include ports, power plants and coal mines, have fallen in value by more than $100 billion since Hindenburg Research’s fraud allegations last week.

Mr Adani vehemently denied the claims but was forced to abruptly scrap a $2.4 billion stock offering for his flagship Adani Enterprises.

His backers include Citigroup, Credit Suisse and Barclays. They are among banks pursuing a range of options to curb the risk of losses, including asking for more collateral and halting the use of Adani company securities to cover margin loans to wealth clients.

Lending to India’s tycoons and their companies was until recently a money-spinner for global banks seeking to cash in on one of the world’s fastest-growing economies.

The country has also been viewed as a buffer to growth in China, whose economy was pummelled by the now-abandoned zero-Covid policy and clampdowns on private enterprise.

“India is clearly a difficult place to lend money,” said Tom Kirchmaier, professor at the Centre for Economic Performance at the London School of Economics.

“Banks are still desperate for business, and this is just a reminder that India may not be able to compensate a decline of Chinese business.”

Many global lenders are also still smarting from the implosion of another billionaire’s company, Archegos Capital Management, which failed in 2021.

Multibillion-dollar losses, regulatory fines and sweeping management changes followed that collapse — a debacle the banks are keen to avoid repeating.

“Banks would not want to be the last ones left holding the bag — just look at Archegos and Greensill Capital and what happened to the banks that reacted slowly,” said Mak Yuen Teen, a professor at the National University of Singapore, who carries out research on corporate governance.

To be sure, there is no indication that Adani Group companies are facing a liquidity crunch.

The tycoon’s port business made payments on dollar bonds as scheduled on Thursday. He is also in talks with creditors to prepay some loans backed by pledged shares as he seeks to restore market confidence, a source said.

Goldman Sachs and JP Morgan Chase have told some clients that bonds related his business empire can offer value.

The group showcased its extensive local and international bank relationships in a 413-page rebuttal to the short-seller’s allegations, which it called “a calculated attack on India”.

Some of the most prominent names in banking are listed among 29 supporters, although the exact nature of their ties was not disclosed.

A newspaper features on Adani Group in Mumbai, India, on Thursday. Mr Adani’s businesses have lost more than $100bn in a week, one of the biggest wipeouts in India’s history, after a report by short-seller forced him to pull a stock sale and led some lenders to reject his securities as collateral for client trades. Bloomberg

The Adani Group, which comprises half a dozen major companies, put up about $300 million worth of shares to maintain its collateral cover on a $1 billion loan, Bloomberg News reported on January 31. The loan was made by a group of banks, including Barclays.

Meanwhile, Citigroup’s wealth unit stopped accepting securities issued by Adani Group companies as collateral for margin loans after “negative news around the group’s financial health” led to dramatic price drops, Bloomberg News reported, citing an internal memo.

Credit Suisse’s private banking unit had also made a similar change for the bonds.

Mizuho Financial Group’s securities division had past dealings with Adani and is examining the allegations being levelled against the conglomerate, the unit’s chief executive Yoshiro Hamamoto told reporters in Tokyo on Thursday.

Mizuho Securities has managed debt issuance by Adani companies, public documents show.

Meanwhile, UBS chief executive Ralph Hamers said the bank’s exposure to the meltdown was not a matter of concern for the Swiss bank.

“I wouldn’t worry about it,” Mr Hamers said in Bloomberg interview this week.

Central bank Questions

India’s central bank has asked lenders for details of their exposure to Adani Group companies, sources said. Domestic banks are standing by Mr Adani, who has close ties to the Narendra Modi government.

Dinesh Khara, chairman of State Bank of India, the country’s biggest lender, told Bloomberg that its loans to the Adani Group are backed by cash-generating assets and overseas exposure was “nominal”.

The lender has given loans of as much as $2.6 billion to companies in the Adani conglomerate, or about half of what is allowed under the rules, according to a source.

Earlier, on Thursday, Indian lender IDFC First Bank said it was “comfortable” with its ties to Mr Adani.

Its outstanding funded exposure represents only 0.06 per cent of the bank’s funded assets while the non-funded outstanding amount is 0.51 per cent. The lender said it was receiving payments on schedule.

Mr Adani has repeatedly denied the allegations, called the short-seller’s report “bogus” and threatened legal action.

His decision to withdraw Adani Enterprises’ follow-on share sale — the largest cancellation in Asia since 2015 according to Bloomberg-compiled data — will not have any impact on existing operations and future plans, he said in a video speech on Thursday.