India's Adani Begins Big Share Sale As Short Seller Triggers $37 Billion Rout

India's Adani Enterprises Ltd began a record $2.45 billion secondary share sale for retail investors on Friday, as a heavy selloff in Adani group companies intensified after an attack by a U.S.-based short seller.

Seven listed companies of the Adani conglomerate - controlled by one of the world's richest men Gautam Adani - have lost a combined $36.5 billion in market capitalisation since Wednesday, 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.

Adani Group has dismissed the report as baseless.

"There were heavy positions in Adani group (shares), the way they have risen in the last couple of years," said Neeraj Dewan, director at Quantum Securities in New Delhi.

"This is a classic case of panic selling...," he said, noting the concerns were also spreading to Indian banks with exposure to Adani group's debt.

Adani Enterprises aims to use the share sale proceeds for capital expenditure and to pay debt. The anchor portion of the sale saw participation from investors including the Abu Dhabi Investment Authority on Wednesday.

Bidding for the Adani Enterprises share sale for retail investors started on Friday and will close on Jan. 31. The firm has set a floor price of 3,112 rupees ($38.22) a share and a cap of 3,276 rupees.

As of 0600 GMT, investors, mostly retail, had bid for around 145,000 shares, compared with the 45.5 million on offer, according to BSE exchange data. Adani Enterprises dropped up to 6.4% and was last down 5.6% at 3,199 rupees - lower than the top end of the price offering.

Adani Transmission Ltd tumbled as much as 19.2% in early trading and Adani Total Gas sank 19.1% in the biggest daily drop since mid-March 2020. Adani Green Energy fell 15.8%, before paring some losses.

"I don't see much effect of the Hindenburg report (on the Adani Enterprises' secondary sahre sale)," Esquire Capital Investment Advisors Chief Executive Samrat Dasgupta told Reuters. It "should sail through successfully."

In its report, Hindenburg said key listed Adani Group companies had "substantial debt", putting the conglomerate on a "precarious financial footing", and that "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, meaning it is betting that their price would fall.

Adani Group has repeatedly faced and dismissed concern about debt levels. It defended itself in a presentation titled "Myths of Short Seller" on Thursday, saying deleveraging by promoters - or key shareholders - was "in a high growth phase".

Jefferies in a client note said Adani Group had shared details of debt and leverage levels, and that it does not "see material risk arising to the Indian banking sector".

Adani Group's consolidated gross debt stood at 1.9 trillion rupees ($23.34 billion), Jefferies said.

Adani has said its debt is at a manageable level and that no investor has raised any concern.

Adani Enterprises' net profit for the period ended Sept. 30, 2022 doubled to 9 billion Indian rupees ($110.31 million) while its total income nearly tripled to 795 billion Indian rupees, according to its share sale prospectus.

The company's total liabilities as of Sept. 2022 stood at 869 billion rupees ($10.64 billion), the prospectus showed.

($1 = 81.5410 Indian rupees)