MSCI To Cut Four Adani Firms' Weightings After Reassessing Free Floats

MSCI said it will cut the weightings of Adani Enterprises and three other Adani firms in its indexes - the latest blow to the Indian conglomerate thrust into crisis by a short-seller's report.

The index provider reasssessed the size of companies' free floats, having determined there was "sufficient uncertainty" surrounding some investors in Adani companies. It embarked on the review after feedback from market participants.

New York-based short-seller Hindenburg Research in a Jan. 24 report accused the Adani group of stock manipulation and improper use of offshore tax havens that obscure the extent of stock ownership of Adani family members in group firms.

The conglomerate, which has denied any wrongdoing, has since been pummelled by a stock rout that has wiped some $110 billion off the value of its main seven listed firms.

In addition to the group's flagship firm Adani Enterprises, MSCI said it plans to cut the weightings for Adani Total Gas - a venture with France's TotalEnergies and Adani Transmission, a power transmission company.

It will also reduce the weighting of ACC, a major Indian cement company acquired from Switzerland's Holcim last year and which is not one of the Adani group's main seven listed firms.

Hindenburg founder Nathan Anderson has said MSCI's review was "validation of our findings". Adani Group did not respond to a request for comment from Reuters on Friday.

The four companies had a combined 0.4% weighting in the MSCI emerging markets index as of Jan. 30. The changes come into effect on March 1.

"The lower free float will require passive investors to sell stock to reduce their tracking error with the index," said Brian Freitas, a Periscope Analytics analyst who publishes on Smartkarma.

He estimated there would be around $570 million to sell by passive funds across Adani Enterprises, Adani Total Gas and Adani Transmission on Feb. 28.

The stock rout has heightened worries that the loss of confidence in the group led by billionaire Gautam Adani could evolve into loss of confidence in Indian businesses generally.

There have been protests in parliament, with lawmakers demanding an investigation. Adani Enterprises, a coal mining firm and the group's incubator for new projects, was also forced to shelve a $2.5 billion stock offering.

Shares in Adani Enterprises were flat on Friday after having plunged 11% on Thursday when MSCI flagged the changes. Adani Transmission and Adani Total Gas slid 5% on Friday, while ACC was down 1%.