By Chris Thomas, Sriram Mani and Aditya Kalra
MUMBAI (Reuters) -Shares of India's Adani Enterprises plunged on Friday after a scathing report by a U.S. short seller triggered a selloff in the conglomerate's listed firms, casting doubts on the success of the company's record $2.45 billion secondary share sale.
Seven listed companies of the Adani conglomerate - controlled by one of the world's richest men Gautam Adani - lost a combined $48 billion in market capitalisation, with U.S. bonds of Adani firms also falling after Hindenburg Research flagged concerns in a Jan. 24 report about debt levels and the use of tax havens.
The rout led to a near 20% fall in shares of Adani Enterprises, the group's flagship company, well below the offer price of its secondary sale. As bidding started on Friday, the issue was subscribed around 1%, raising concerns over whether it would be able to proceed.
"The news cycle in the past few days has clearly impacted the share sale and you can clearly see that in the subscription levels, especially the low retail participation," said Narendra Solanki, fundamental research head at domestic brokerage Anand Rathi.
The Adani Group was concerned but prepared to wait it out for now as the share sale continues until Jan. 31, two people with direct knowledge of the situation said.
India's capital markets regulator is studying the Hindenburg report as it may help its own probe into offshore fund holdings of Adani Group, two other sources said. Spokespersons for the regulator and Adani had no immediate comment.
Adani Group dismissed the Hindenburg report as baseless and said it is considering whether to take legal action against the New York-based firm.
With a net worth of $96.6 billion, billionaire Gautam Adani is now the world's seventh richest man, according to Forbes, slipping from the third position due to the stock rout.
The 60-year-old hails from the western state of Gujarat, the home state of Prime Minister Narendra Modi. India's main opposition Congress party has often accused Adani and other billionaires of getting favourable policy treatment from Modi's administration, allegations the billionaire denies.
The Adani Group was established in 1988, beginning with commodities trading. The conglomerate's business interests now extend from ports and airports to mining and renewable power.
The anchor portion of the share sale that began on Friday saw participation from investors including the Abu Dhabi Investment Authority and Maybank Securities on Wednesday.
Shares of the listed Adani firms that plummeted on Friday include Adani Transmission Ltd, Adani Total Gas and Adani Green Energy sinking 20% each - marking their worst day ever - while Adani Ports and Special Economic Zone fell 16.3%.
At the end of the first day of the share sale, investors, mostly retail, had bid for around 470,160 shares in the Adani Enterprises share sale, compared with 45.5 million on offer, according to Indian stock exchange data. The share sale is being managed by Jefferies, India's SBI Capital Markets, and ICICI Securities among others.
The firm has set a floor price of 3,112 rupees ($38.22) a share and a cap of 3,276 rupees. But on Friday the stock ended at 2,761.45 rupees - well below the lower end of the range.
Anand Rathi's Solanki said "with the current market price below the share sale offer price, it further puts doubts on issue subscription."
Investors' worries extended to Indian banks with exposure to Adani debt. The Nifty Bank index fell over 3%, while the broader 50-share Nifty index ended down 1.6%.
CLSA estimates that Indian banks were exposed to about 40% of the 2 trillion rupees ($24.53 billion) of Adani Group debt in the fiscal year to March 2022.
“There is nothing alarming about Adani exposure and we don't have any concerns as of now,” Dinesh Kumar Khara, chairman of the country’s largest lender State Bank of India, told Reuters, adding that Adani hasn't raised any recent funds from the bank.
"SKY-HIGH VALUATIONS"
Adani met the country's power minister R.K. Singh on Friday, but the agenda of the meeting was not immediately known.
U.S. dollar-denominated bonds issued by Adani Green Energy fell to just under 77 cents on the dollar to their lowest since November, Tradeweb data showed.
In its report, Hindenburg said key listed Adani Group companies had "substantial debt", putting the conglomerate on a "precarious financial footing". It also said "sky-high valuations" had pushed the share prices of seven listed Adani companies as much as 85% beyond actual value.
Billionaire U.S. investor Bill Ackman said on Thursday that he found the Hindenburg report "highly credible and extremely well researched."
Hindenburg said it held short positions in Adani through its U.S.-traded bonds and non-Indian-traded derivative instruments.
Adani Group has repeatedly dismissed concern about its debt levels, defending itself in a presentation titled "Myths of Short Seller" on Thursday.
Jefferies said in a client note it does not see material risk to Indian banks from the group's debt. Adani has said its borrowings are manageable and no investor has raised any concern.
Adani has been diversifying its business interests and last year bought cement firms ACC and Ambuja Cements from Switzerland's Holcim (SIX:HOLN) for $10.5 billion. ACC shares slid 13.2% on Friday, while Ambuja plunged 17.3%.