Shares in the business empire of Asia's richest man, Gautam Adani, nosedived on Friday, extending this week's losses after a U.S. investment firm claimed Adani Enterprises had committed "brazen" corporate fraud.
Adani, 60, began his week the world's third-richest person but has tumbled down the rankings to seventh on Forbes' billionaires tracker after a $22.6 billion hit to his fortune in Friday's trade.
A scathing report by the U.S. short-seller Hindenburg Research triggered a massive selloff in Adani Enterprises' listed firms, casting doubts on the company's record $2.45 billion secondary offering.
Seven listed companies of the Adani conglomerate have lost a combined $48 billion in market capitalization 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.
The flagship Adani Enterprises plunged nearly 20% over the day's trade in Mumbai, briefly triggering an automatic trading halt, before recovering slightly to close 18.52% lower.
Trading was also halted in five other group companies, with shares in Adani Total Gas, Adani Green Energy and Adani Transmission falling about 20% apiece and triggering their own stock exchange circuit breakers.
Panic-selling
"Obviously this is panic-selling," JM Financials equity research chief Ashish Chaturmohta told Agence France-Presse (AFP), adding that traders were creating fresh short-sell positions to protect previously made bullish bets on Adani stocks.
Hindenburg Research this week alleged in a report that Adani Group had used undisclosed related-party transactions and earnings manipulation to "maintain the appearance of financial health and solvency" of its listed business units.
The conglomerate said it was the victim of a "maliciously mischievous" reputational attack by Hindenburg just as it was preparing for a major fundraising round.
Legal chief Jatin Jalundhwala said in a statement that Hindenburg's short position in the firm, announced in the report's release, was proof the company had a vested interest in driving down Adani stocks.
Adani was exploring its punitive action against the research advisory in U.S. and Indian courts, he said.
Hindenburg responded that Adani had ducked the issues its research had raised and instead resorted to "bluster and threats."
"If Adani is serious, it should also file suit in the U.S.," the firm said in a statement. "We have a long list of documents we would demand in a legal discovery process."
Shares in Adani business units have soared as much as 2,000% in the past three years, adding more than $100 billion to its founder's net worth and vaulting him up the ranks of the world's richest people.
Adani – who now has an estimated fortune of $96.6 billion – is considered a close supporter of Prime Minister Narendra Modi.
The report said a pattern of "government leniency towards the group" stretching back decades had left investors, journalists, citizens and politicians unwilling to challenge the group's conduct "for fear of reprisal."
"The issues strike at the heart of the Indian corporate sector scene where several family-controlled conglomerates dominate," Gary Dugan, chief executive officer of the Global CIO Office, told Bloomberg.
"By their very nature, they are opaque, and global investors have to take on trust the issues of corporate governance."
'Old news'
Hindenburg's report landed days before Adani's ambitious $2.5 billion follow-on public offer – India's biggest-ever – opened for bids on Friday, aimed at bolstering the business empire's balance sheet.
"The report is 100% unsubstantiated," market analyst Arun Kejriwal said, adding that Hindenburg was looking to "make money" with its short position in Adani.
"It is just a compilation of old news when it hurts them the most," Kejriwal said. "The more scandalous they make it, the more damage it causes."
Shares in Adani Enterprises fell to 2,712 each at their lowest point in the day, well below the FPO price band of 3,112-3,276 rupees per share.
Hindenburg's report accused Adani Group of engaging in a "brazen stock manipulation and accounting fraud scheme over decades."
It claimed Adani's elder brother Vinod managed "a vast labyrinth of offshore shell entities" in tax havens including Mauritius, Greek Cyprus and several Caribbean islands.
The Mumbai stock exchange's benchmark Sensex index closed 1.45% lower on Friday afternoon, primarily dragged down by the Adani rout.