Gautam Adani's woes could embroil Israel

Israel Katz, Benjamin Netanyahu, Gautam Adani, and Miri Regev at Haifa Port  credit: Haim Zach, Government Press Office
Israel Katz, Benjamin Netanyahu, Gautam Adani, and Miri Regev at Haifa Port credit: Haim Zach, Government Press Office

Under attack by a short seller, the man who just bought Haifa Port has seen his wealth cut by almost half in less than two weeks.

The crisis that is rocking Indian conglomerate Adani Group, which recently bought control of Haifa Port, rumbles on. According to reports in India, Shri Shaktikanta Das, governor of the Reserve Bank of India, has sent an urgent request to the country’s banks for details of their exposure to the group’s businesses.

The request followed the hurried cancelation of an equity offering that the group had planned for months and had worked hard to complete. The background to this was a stubborn fight between Adani Group and US-based research and short selling outfit Hindenburg, which led to the collapse of the share prices of companies in the group.

The spate of reports in the past couple of weeks about the many accusations that Hindenburg has made against Adani Group, and the group’s sharp responses, have stoked fears for Adani Group’s financial stability.

Adani Group has a range of activities in energy, infrastructure, logistics, and food processing. Possible disruption to its lines of credit is liable to send shock waves through the Indian economy. Nevertheless, reassuring noises are coming out of the country, and some reports there seek to minimize Adani Group’s weight in the economy.

On Friday, two of the international credit rating agencies commented on the situation of one of the group’s companies, Adani Ports, the entity that actually bought the controlling stake (70%) in Haifa Port. Standard & Poor’s revised its rating outlook for Adani Ports from "Stable" to "Negative". While it said that the company’s short-term liquidity was adequate and that its debt over the next twelve months was manageable, it cited the corporate governance risk in the Adani Group as a reason for downgrading the rating outlook.

Gautam Adani’s wealth almost halved

Meanwhile, rating agency Fitch stated that it saw no immediate effect from Hindenburg’s report on Adani Group. On Friday, Adani Ports’ share price slid 14%, and then rose 25% from there by the close, giving the company a market cap of $13 billion.

The upheaval in the share prices of the group companies has pushed Adani Group founder, chairperson and managing director Guatam Adani down from a ranking of third wealthiest person in the world to 21st on the Bloomberg Billionaires Index within less than two weeks. According to Bloomberg, Adani’s wealth has shrunk by some $50 billion, that is, almost by half, to about $60 billion.

Last week, Adani himself participated in a ceremony at Haifa Port attended by Prime Minister Benjamin Netanyahu, Minister of Transport Miri Regev, and Minister of Energy Israel Katz. At the ceremony, control of the port was officially handed over to Adani, who acquired it in a consortium with Israel’s Gadot Group for NIS 3.9 billion, NIS 1 billion above the next highest bid, in an auction held by the state.

Since Haifa Port has passed to Adani Group’s control, the latter’s troubles are of concern to Israel as well.

On January 24, Hindenburg published a report hundreds of pages long in which it claimed that Adani Group and entities associated with it were apparently involved in a series of manipulations in accounting and in securities trading.

Among other things, it is claimed in the report that improper actions in share trading by associates of Adani artificially inflated the group’s market cap. Adani Group denied the allegations, upon which Hindenburg came out with a further report claiming that the group’s response was only partial.

Within less than two weeks (up to last Thursday) over $100 million was wiped off the aggregate market cap of the listed companies in the Adani Group.

The effect on the BSE (Bombay Stock Exchange) has so far not been great. The exchange’s main index, the BSE Sensex, rose 2.4% last week, and has fallen by just 0.5% so far this year. The MSCI India index, which includes most of the group’s companies, fell 2% last week, and is down 4.4% for the year to date.

What is the risk to Haifa Port?

Among those who could be affected by events at Adani Group are the lenders that helped to finance the purchase of Haifa Port. Mizrahi Tefahot Bank, Meitav, and other investment institutions provided Adani with NIS 1.1 billion credit for two years at an interest rate of prime plus 2% (currently amounting to 8%). The port and its business are collateral for the finance, which means that the credit represents less than 30% of the port’s value and the coverage ratio is good.

"The consortium that financed this credit sees no cause for concern at present," a source familiar with the details said. "Should difficulties arise, the state may in the end have to find another buyer. The man is being hounded by short sellers who are trying to bring him down, and although at the moment the affair has no connection with Israel, we have seen in the past that what begins high up in leveraged groups can ultimately have an impact lower down."

Published by Globes, Israel business news - - on February 6, 2023.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.

Israel Katz, Benjamin Netanyahu, Gautam Adani, and Miri Regev at Haifa Port  credit: Haim Zach, Government Press Office
Israel Katz, Benjamin Netanyahu, Gautam Adani, and Miri Regev at Haifa Port credit: Haim Zach, Government Press Office
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