Adani pulls back on grand ambitions after Hindenburg bombshell

Two months on from its explosive report into Gautam Adani's acquisitive conglomerate, short seller Hindenburg Research has left the Indian billionaire's empire chastened and reevaluating its ambitions.

Hindenburg's allegations of extensive, years-long corporate fraud at the Adani Group have wiped out about $125 billion in market value since January, spurring the tycoon to rein in plans to expand into new sectors, according to people familiar with the company's inner workings.

The group, which racked up one of India's heftiest debt loads to fund fresh areas of growth, is pulling back from petrochemicals and is unlikely to go ahead with a planned $4 billion greenfield coal-to-polyvinyl chloride project in Mundra, western India, said the people, asking not to be identified on what are internal discussions.

It's also dialing back on ambitions to dive further into aluminum, steel and road projects, said the people.

Instead, Adani — who has been closely associated with Indian Prime Minister Narendra Modi's nation-building efforts — will revert his focus to core projects. They include power generation, ports and newer green energy initiatives, according to the people.

Even in these core areas, the billionaire will proceed in a fundamentally different style. After selling family shares to pre-pay $2.15 billion of margin-linked, share-backed funding taken out to finance a slew of acquisitions, Adani intends to avoid this sort of high-risk financing going forward, the people said.

Adani will stick to fund-raising methods like private bond placements and equity stake sales to specific investors — like its share sale to Rajiv Jain's GQG Partners — to raise cash in a way that insulates the empire from volatile market movements, they said.

It's a stark turnaround from 2022, when Adani's stature and wealth sky-rocketed. At one point the former diamond trader was Asia's richest man and his investments extended into sectors well beyond his traditional heavy infrastructure bets — including media, women's cricket and data centers.

Putting debt-driven diversification on the back burner is now seen as key to restoring confidence. The group, which bought a controlling stake in TV channel New Delhi Television Ltd. in recent months as the first step in building what the tycoon then called "the Financial Times or Al-Jazeera of India," is now unlikely to make more purchases in the media space, according to the people familiar with Adani's planning.

"There's good reason to believe the company will draw back a bit in order to focus on damage control and other shareholder and wider investor concerns," said Michael Kugelman, director of the South Asia Institute at the Washington-based Wilson Center. "Reputational considerations are critical."

Adani has denied all of Hindenburg's allegations, characterizing it as an attack on India. Representatives for the group didn't respond to a request for comment. Last week, Adani Group said it expects funding for the greenfield coal-to-polyvinyl chloride project to be arranged in the next six months, rebutting a recent report in local media that the initiative had stalled.

The internal reckoning follows a number of fire-fighting moves by the Adani Group aimed at shoring up investor sentiment. In the days after the Hindenburg report, the conglomerate pulled a share sale and then proceeded to pre-pay $2.15 billion of debt to stem a mammoth selloff in stock of its Mumbai-listed units. It's mounted a six-city roadshow aimed at rebutting the short seller's claims and sold stakes in four companies to top emerging-markets investor GQG Partners.

The pullback is not entirely by choice, with some of its major partners scared off by the turmoil. Paris-based TotalEnergies SE is already putting a green hydrogen partnership project with the group on hold. In February, Adani also shelved plans to buy a coal mine in central India, and has decided against bidding for a stake in state-backed electricity trader PTC India Ltd., a highly symbolic retreat given how vested the group has been in developing India's electricity infrastructure.

For years, Adani has tied his businesses to Modi's development plans. The perception he enjoys a cozy relationship with India's premier has prompted widespread accusations of crony capitalism, and the billionaire has come under invigorated political attack following Hindenburg's report.

The short seller's allegations have made Adani's relationship with Modi and the government fair game, with the opposition Congress Party saying the tycoon benefited from special state treatment. In a stunning move, Congress leader Rahul Gandhi was removed as a lawmaker last week in what he says was retribution for debating Adani's ties to Modi.

Gandhi, a scion of India's most famous political dynasty, was ousted from parliament on Friday, after a local court convicted him of defaming Modi during an election speech in 2019. Modi's ruling Bharatiya Janata Party has said the law applies equally to everyone and Gandhi must face the consequences.

Adani, meanwhile, has consistently denied receiving any favoritism because of his association with the prime minister.

'Short-Term Memories'

Hoping to sell the group's turnaround message, Adani executives have been jetting regularly from the company's headquarters in Ahmedabad to Dubai, London and New York to personally meet about 100 investors in a month and convince them that the house is in order, according to the people.

Adani Group's deleveraging efforts will see it slash net debt to earnings before interest, taxes, depreciation and amortization (EBITDA) to as low as 2.5, from the current 3.1, resulting in a some stark trade-offs, said the people.

Adani's ports handle about a quarter of India's cargo volumes, and the group has expanded overseas from Israel to Sri Lanka. But, in that flagship business, Adani's plans to halve capital spending and prepay 50 billion rupees ($608 million) of debt to alleviate refinancing concerns, "will impede the company's ability to boost earnings growth through infrastructure expansion and M&A," Denise Wong, an analyst at Bloomberg Intelligence, wrote in a report earlier this month.

Whether reining in its ambitions has an impact remains to be seen. Adani Group stocks slumped Tuesday after India's Economic Times reported the group is seeking to renegotiate the terms of $4 billion worth of loans, renewing concerns about the conglomerate's ability to repay its debt and its access to funds. The losses were compounded by a story from business news website The Ken, which said regulatory filings showed banks have not yet released a large portion of Gautam Adani's shares. The group denied both reports.

Adani's actions are being closely watched by credit ratings companies. S&P Global Ratings earlier this month cited a litany of reasons why the group's ratings on Adani units have downside risks, from the prospect it faces restricted access to funding to the chance it's the subject of a probe that uncovers "serious wrongdoing." India's Supreme Court has set up a panel to investigate Hindenburg's allegations.

Along with dramatically rising refinancing costs, sentiment is against Adani and "the risk premium will be certainly higher," said Abhishek Jain, head of research at Mumbai-based brokerage Arihant Capital Markets Ltd., which has advised clients on Adani-related stocks. "The group is doing whatever they can do to restore the confidence of the investors."