Adani Bond Rebound Helps Erase Short Seller Hit: Credit Weekly

A rally over the last week was powerful enough to erase some losses on a series of dollar bonds tied to the conglomerate of billionaire Gautam Adani, debt that had dropped after a short seller accused firms owned by Adani of fraud.

The jump came after the group, which strenuously denies the allegations, raised $1.4 billion for a renewables project and published an initial blueprint for refinancing a solarenergy unit’s $750 million dollar bond that matures in September.

That was enough to also add a whopping $37.5 billion in market value to the group’s listed companies, while notes of the corporation’s electricity and power transmission businesses are now within striking distance of their price level before January’s report by Hindenburg Research.

The Adani Group headquarters in Ahmedabad, India. Photographer: Dhiraj Singh/Bloomberg The rebound suggests the conglomerate, once termed “deeply overleveraged” by research firm CreditSights, is finding favor with investors again. The group, whose operations range from cement to airports and coal mining, has yet to tap overseas bond markets since the January publication, which came at a time when rapidly rising US interest rates curbed offshore issuance by Asian companies.

Billionaire Adani has “clearly got some great assets and he’s clearly able to monetize those,” said Kamil Dimmich, a partner at London-based North of South Capital. “He’s certainly been helped by the underlying businesses becoming more profitable.”

The conglomerate’s units have about $7.5 billion of dollar notes outstanding, according to data compiled by Bloomberg. About $1.58 billion of those notes come due next year, meaning the amount the firm has to pay for replacement debt will be closely watched. It’s already successfully refinanced $3.5 billion worth of credit for the purchase of two cement companies.

As part of the road map for the green energy firm’s bond, the firm said bankers will provide it with a $675 million funding letter in relation to the notes and it will use proceeds from equity transactions to come up with the money.

Over the “next three years Adani Group companies, particularly on infrastructure and green space, will likely outperform as those are all backed by robust assets,” said Sanjiv Bhasin, director at IIFL Securities.

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There are still obstacles facing the company in the wake of the short seller report. India’s Supreme Court set up a six-member panel in March to probe if there was a regulatory failure, and also asked the local markets regulator to investigate any manipulation in Adani stocks. The outcome of an investigation by the Securities and Exchange Board of India on the allegations of impropriety and shortfalls in corporate governance is still outstanding.

Apart from delving into the rout in Adani Group stocks following Hindenburg’s report, Sebi is investigating if there was a violation of rules concerning minimum public shareholding, related party transactions and manipulation of stock prices.

“The Adani group has demonstrated that they can access funding even as governance concern lingers, and we believe that it has levers to pull, including raising equity, to cover these maturities,” said Bloomberg Intelligence analyst Sharon Chen. “As funding access normalizes, we’re also watching the companies’ investment pace and the potential impact on leverage.”

• What to Watch

Around $10 billion of US high-grade bond sales are expected next week. About 80% primary market participants forecast less than €5 billion of issuance in Europe.

ECB policymakers are expected to hold rates steady at their final meeting of the year. Investors will be looking for any hints at rate cuts in 2024 when President Christine Lagarde speaks after the announcement. New economic forecasts through 2026 will also be released.

November’s headline CPI inflation on Dec. 12 will be flat at 0% for a second straight month, Bloomberg Economics forecasts, with energy prices continuing to suppress the reading.

A range of data out of China will probably show more weak signals , though Bloomberg Economics sees credit data offering some encouraging signs for a recovery

• Week in Review

In a sweeping series of actions, Moody’s this week lowered China’s sovereign rating outlook to negative from stable. The decision reflects its perceptions that financial support will be provided to financially-stressed local governments and state-owned enterprises, which the ratings company says “posing broad downside risks to China’s fiscal, economic and institutional strength.”

Moody’s also slashed its outlook on Hong Kong and Macau, citing signs of reduced autonomy of Hong Kong’s political and judiciary institutions after the implementation of a National Security Law. It also cut its outlook for
some Chinese banks, insurers and local government financing vehicles.

Former cargo hauler Yellow Corp. agreed to sell its trucking terminals to more than 20 companies for $1.9 billion, a move that likely ends a long-shot effort to revive the bankrupt company.

UBS Group AG will redeem an additional tier 1 bond worth $2.5 billion at the first possible date next month, in a move aimed at reassuring investors after a turbulent year for the risky category of bank bonds.

The US Supreme Court signaled a likely divide over Purdue Pharma LP’s $6 billion opioid settlement, as the justices weighed Biden administration contentions that the accord improperly shields the Sackler family members who own the company.

China Evergrande Group won breathing room to strike a restructuring agreement with creditors after a Hong Kong court again pushed back a decision on whether the world’s most-indebted property developer should
be wound up.

The Bank of England joined the growing list of policymakers and market participants concerned about the booming $1.6-trillion private credit market.

• On the Move

Benjamin Fader-Rattner has joined Nexus Capital Management as a liquid credit trader, according to a person with knowledge of the matter.

Texas Capital Bank has hired Pierre Y. Chung to work in its loan and bond sales, trading and syndication group, a company representative said.

Ramirez & Co. has added Anthony Kinsey as a senior vice president in its public finance division, according to a post on LinkedIn announcing the move.

Sumitomo Mitsui Banking Corp. appointed Yew Chuan Sim as head of private credit distribution for Asia Pacific in the loan capital markets department