Adani stocks rally on early repayment of $1.11bn debt

The group’s market capitalisation has plummeted since Hindenburg's scathing report was released

An activist holds a placard denouncing billionaire Gautam Adani during a protest in New Delhi. Reuters

Adani Enterprises surged on Tuesday, leading gains in most of the group’s stocks as the early repayment of some borrowings by the indebted conglomerate’s founders boosted confidence.

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 to trim the slump in the group’s market capitalisation to $112 billion since US-based Hindenburg Research released a report on January 24 alleging market manipulation and accounting fraud.

The Adani Group has repeatedly denied the claims.

The reprieve came as Gautam Adani and his family prepaid $1.11 billion worth of debt in a bid to calm a sell-off 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 four group companies’ earnings on Tuesday will offer 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 KR Choksey Holdings in Mumbai.

“The group is expected to take more corrective actions going forward.”

Adani Ports & Special Economic Zone, Adani Green Energy, Ambuja Cements and New Delhi Television are due to announce results on Tuesday.

Adani Transmission jumped by its limit after posting a 78 per cent gain in third-quarter profit on Monday.

Hindenburg’s accusations have placed long-held concerns about the group’s debt-fuelled expansion on the global stage, and opposition politicians 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 assess their options.

Traders have been waiting for Mr Adani to restore confidence after losses in his companies’ securities threatened to spiral further after one of the biggest wipeouts in India’s history.

“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.

“Investors looking to buy should wait for a technical confirmation such as retest and failure to follow through around recent lows.”

Eight of the group's 10 stocks were trading higher on Tuesday. The rally by Adani Enterprises came after the share tumbled by more than half since the explosive report was released.

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 news 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.”

The volatility levels in the stocks have reduced and swings could narrow further if there are no negative catalysts or news developments

Deepak Jasani,
head of retail research at HDFC Securities

In the credit market, 10 in 15 dollar bonds issued by Adani Group companies declined, according to data compiled by Bloomberg.

The drop was led by Adani Ports and Special Economic Zone’s debt due in 2041, which fell by more than 0.7 cents as of 1.38pm in Hong Kong.

Hindenburg Research has alleged that a web of Adani-family controlled offshore shell entities in tax havens were used to enable corruption, money laundering and taxpayer theft.

The conglomerate has called the report “bogus” and threatened legal action. Mr Adani gave a video speech last week stating that the group’s balance sheet was healthy.

Investors are keenly watching the group’s actions, with some saying it will take a lot more effort to restore the confidence of the market.

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 [capital expenditure] goes.”