By Chris Thomas and Aditya Kalra
NEW DELHI (Reuters) - Most Adani Group shares fell sharply on Monday as the Indian conglomerate's rebuttal of a U.S. short-seller's criticism failed to pacify investors, deepening a market rout that has now led to losses of $65 billion in the group's stock values.
Led by Asia's richest man Gautam Adani, the Indian group has locked horns with Hindenburg Research and on Sunday hit back at the short-seller's report of last week that flagged concerns about its debt levels and the use of tax havens.
Adani said it complied with all local laws and had made the necessary regulatory disclosures.
Adani Transmission, Adani Total Gas, Adani Green Energy, Adani Power and Adani Wilmar fell between 5% and 20% on Monday.
Flagship Adani Enterprises, which is facing a crucial test this week with a follow-on share offering, swung between gains and losses before settling 4.8% higher. It stayed well below the offer price of the issue, which if successful will be largest such share offering ever in India.
Adani Enterprises' $2.5 billion secondary share sale closed its second day amid weak investor sentiment. The stock closed at 2,892.85 rupees, 7% below the 3,112 rupees lower end of the offer price band. The upper band is 3,276 rupees.
GRAPHIC: Adani firms' market cap erosion since Hindenburg report Adani firms' market cap erosion since Hindenburg report (https://www.reuters.com/graphics/ADANI-MCAP/MCAP-ADANI/gkplwxryavb/chart.png)
Data from stock exchanges on Monday showed Adani has now received bids for 1.4 million shares, or just over 3%, of the 45.5 million shares on offer. The deal closes on Tuesday.
Foreign and domestic institutional investors, as well as mutual funds, have made no bids so far, according to the data.
"Retail participation is likely to have a shortfall with current market prices still trailing the offer price and sentiment taking a hit due to the Hindenburg controversy," said Hemang Jani, equity strategist at Motilal Oswal Financial Services.
"While there is a risk that the share sale does not go through, it will be crucial today to wait and see how institutional investors participate."
Abu Dhabi conglomerate International Holding Company said on Monday it would invest 1.4 billion dirhams ($381.17 million) in the offering.
ON SCHEDULE
Adani Group told Reuters in a statement on Saturday that the sale remained on schedule at the planned issue price, even as sources said bankers of the country's largest secondary share sale were considering extending the timeline beyond Jan. 31, or tweaking the price due to the fall in its share price.
Indian regulations say the share offering must receive minimum subscription of 90%, and if it does not the issuer must refund the entire amount. Maybank Securities and Abu Dhabi Investment Authority are among investors who bid for the anchor portion of the issue.
Maybank said in a statement "there is no financial impact" on it as the subscription to Adani's offer was fully funded by client funds.
State-run insurance behemoth Life Insurance Corporation (LIC) told Reuters on Monday it was reviewing the Adani Group's response to Hindenburg's report and would hold talks with the management within days.
LIC took 5% of the $734 million anchor portion. It already holds a 4.23% stake in the flagship Adani firm, while its other exposures include a 9.14% stake in Adani Ports and 5.96% in Adani Total Gas.
"Since we are a large investor we have the right to ask relevant questions," LIC Managing Director Raj Kumar said.
DEBT, DE-LEVERAGING
U.S. dollar-denominated bonds issued by Adani Ports and Special Economic Zone continued their fall into a second week with the bond maturing in August 2027 down 5 cents to 73.03 cents, the lowest since June 2020. Other dollar denominated bonds of the group were also trading lower.
Index provider MSCI has said it was seeking feedback from market participants on Adani and was monitoring the factors that "may impact the eligibility of those relevant securities" in MSCI indexes.
In its response on Sunday, Adani highlighted its relationships with local and international banks and its access to diverse funding sources and structures, listing U.S. banks Citigroup (NYSE:C) and JPMorgan Chase & Co (NYSE:JPM), as well as other lenders including BNP Paribas (EPA:BNPP), Credit Suisse (SIX:CSGN), Deutsche Bank (ETR:DBKGn), Barclays (LON:BARC) and Standard Chartered (LON:STAN).
The stock market meltdown is a dramatic setback for 60-year-old Adani. The school-dropout's stunning rise came with over 1,500% gains in some of his group stocks over three years, making him the world's third richest man before he slipped to rank eighth on the Forbes list on Monday.
Responding to Adani's rebuttal, Hindenburg said the company's "response largely confirmed our findings and ignored our key questions".
GRAPHIC: Gautam Adani slips to world's eighth richest person (https://www.reuters.com/graphics/ADANI-INDIA/HINDENBURG-NETWORTH/akpeqadbbpr/chart.png)
Hindenburg in its report said Adani companies had "substantial debt" and that shares in seven Adani listed companies have an 85% downside due to what it called "sky-high valuations".
Adani's response stated that over the past decade, its group companies have "consistently de-levered".