NEW DELHI: Financial contagion fears spread in India on Friday (Feb 3) as the Adani Group's crisis worsened, with ratings agency Moody's warning the conglomerate may struggle to raise capital and S&P cutting the outlook on two of its businesses.
Chaotic scenes in both houses of India's parliament led to their adjournment on Friday as some lawmakers demanded an inquiry after a dramatic meltdown in the stock market values of Indian billionaire Gautam Adani's companies.
The crisis was triggered by a Hindenburg Research report last week in which the US-based short-seller accused the Adani Group of stock manipulation and unsustainable debt.
Adani Group, one of India's top conglomerates, has rejected the criticism and denied wrongdoing in detailed rebuttals, but that has failed to arrest the unabated fall in its shares.
In the latest sign of the crisis widening, India's ministry of corporate affairs has begun a preliminary review of Adani Group's financial statements and other regulatory submissions made over the years, two government officials told Reuters.
Although shares in Adani companies recovered after sharp falls earlier on Friday, the seven listed firms have still lost about half their market value, totalling more than US$100 billion since Hindenburg published its report on Jan 24.
Moody's warned the share plunge could hit the Adani Group's ability to raise capital, although fellow credit ratings agency Fitch saw no immediate impact on its ratings.
"These adverse developments are likely to reduce the group's ability to raise capital to fund committed capex or refinance maturing debt over the next 1-2 years. We recognise that a portion of the capex is deferrable," Moody's said.
For Adani, a former school drop-out from Gujarat, the western home state of Indian Prime Minister Narendra Modi, the crisis presents the biggest reputational and business challenge of his life, as his firm struggles to assuage investor concerns.
Amid fears the turmoil could spill over into the broader financial system, some Indian politicians have called for a wider investigation, and sources have told Reuters the central bank has asked lenders for details of exposure to the group.
"Contagion concerns are widening, but still limited to the banking sector," Charu Chanana, a market strategist with Saxo Markets in Singapore, said on Friday.
The Reserve Bank of India said the country's banking system remains resilient and stable. State Bank of India said it was not concerned about the exposure to Adani Group, but further financing to its projects would be "evaluated on its own merit".
Adani Enterprises shares closed 1.4 per cent higher, after earlier slumping 35 per cent to hit their lowest since March 2021. That low took its losses to nearly US$33.6 billion since last week, a 70 per cent fall.
Shares fell 5 per cent in Adani Total Gas, a joint venture with France's TotalEnergies, which said its exposure to Adani companies was limited.
Adani Ports and Special Economic Zone was up 8 per cent, while Adani Transmission and Adani Green Energy were both down 10 per cent.
"There is a risk that investor concerns about the group's governance and disclosures are larger than we have currently factored into our ratings," S&P said, as it cut its outlook on Adani Ports and Adani Electricity to negative from stable.
India's divestment secretary Tuhin Kanta Pandey told Reuters that Life Insurance Corp (LIC) shareholders and customers should not be concerned about its exposure to the Adani Group.
State-run LIC has a 4.23 per cent stake in the flagship Adani Enterprises, while its other exposures include a 9.14 per cent stake in Adani Ports.
Adani, 60, has in recent years forged partnerships with, and attracted investment from, foreign giants as he pursued global expansion in industries from ports to power.
The market and financial crisis means foreign investors, many already underweight on India as they consider its stock market overpriced, are reducing exposure.
"One instance, however much talked about globally it may be ... is not going to be indicative of how well Indian financial markets are governed," Indian Finance Minister Nirmala Sitharaman told Network18 when asked about the market weakness.
Hindenburg's report said key listed Adani companies had "substantial debt" and shares in the seven listed firms had a downside of 85 per cent due to what it called sky-high valuations.
The Adani Group has called the report baseless and said over the past decade, its companies have "consistently de-levered".
The listed Adani firms now have a combined market value of US$107.5 billion, versus US$218 billion before the report.
That has forced Adani to cede the crown of Asia's richest person to Indian rival Mukesh Ambani of Reliance Industries, and he has slid to 17th in Forbes' list of the world's wealthiest people.
He had ranked third, behind Elon Musk and Bernard Arnault.