Distressed Funds, including Oaktree Scoop Up Adani Bonds

“Oaktree Capital Scoops Up Adani Bonds as Distressed Funds Look for Bargains”

(Bloomberg) – Hedge funds and distressed debt specialists have snapped up bonds related to Gautam Adani’s business empire in a potential sign of encouragement for the group, which is trying to boost confidence after a damning short seller report.

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Oaktree Capital Management, one of the world’s largest opportunistic lending firms, and Davidson Kempner Capital Management were among the buyers of the debt in recent weeks, according to people familiar with the matter, who asked not to be named because the deals are not public. Hindenburg Research had said in its criticism of the Adani companies that it had taken a short position on US-traded bonds.

The buying adds to burgeoning signs that the Indian conglomerate’s securities are weakening after some of its bonds defaulted while more than $100 billion in equity values were wiped out. The Adani group this week stepped up its defenses by prepaying loans and pledged to cut debt ratios, helping contain a three-week sell-off.

“The dichotomy between equity markets and bond markets appears to be re-emerging, with bond markets stabilizing and highlighting reduced risk of default on debt,” Sanford C. Bernstein analysts Nikhil Nigania and Anusha Madireddy wrote in a note Tuesday. “We would think the debt market should ideally be a leading indicator here if debt is the problem.”

After Hindenburg’s claims that the group had inflated earnings and share prices, which Adani has repeatedly denied, there are signs of easing across the board. Adani Enterprises Ltd., the flagship company, closed down nearly 15% on Tuesday, leading gains as other related stocks also rose.

Some of Adani’s dollar-denominated bonds slipped into distressed territory following the release of the Jan. 24 Hindenburg report, urging bond investors to hold initial discussions with financial advisors and lawyers to weigh options.

More recently, stocks have recouped some of the losses. Nine of the $15 bonds issued by the group rose on Tuesday, data compiled by Bloomberg shows.

Distressed funds have been actively trading their Asian offices’ bonds, according to a person familiar with the matter. It’s not clear if the firms were already holding Adani bonds before Hindenburg Research’s damning report. Oaktree and Davidson Kempner representatives declined to comment. The Economic Times previously reported details of distressed funds buying Adani’s bonds.

While the buying may be encouraging, the involvement of distressed debt firms is also an indication of how far bonds have fallen.

Speaking to clients last week, trading executives at Goldman Sachs Group Inc. said Adani Securities had piqued the interest of opportunistic investors amid the slump.

Goldman Sachs traders said Adani debt had bottomed in the near term and bonds from Adani Ports & Special Economic Zone Ltd. have become interesting at the current price. The price of these bonds rose in the days that followed as investors sought to take advantage of the potential for a recovery.

results reports

There were more encouraging signs for traders this week.

Adani Ports & Special Economic Zone Ltd. announced on Tuesday that it will repay around 50 billion rupees ($605 million) in debt to improve its debt metrics. That came a day after the billionaire and his family prepaid $1.11 billion in loans backed by shares in three group companies, including Adani Ports.

Some of the companies in the indebted conglomerate also reiterated their strength in earnings reports this week. Strong Results Show Adani Green Energy Ltd. has a “robust leveraged capital management program that is well aligned with the business model,” Chief Executive Officer Vneet S. Jaain said Tuesday.

“Over the past few days, this has been reconfirmed by rating agencies, equity and credit analysis analysts, as well as various banks, financial institutions, long-term investors and other key stakeholders,” Jaain said.

There was also revenue from Ambuja Cements Ltd. and Adani Transmission Ltd., although the port unit missed estimates.

According to people familiar with the matter, Adani Enterprises has shelved a plan to raise up to Rs.10 billion through its first-ever public sale of bonds since the market crisis.

While Adani Ports and Special Economic Zone Ltd. are said to have made their coupon payments last Thursday, other tests are pending. It was reported on Friday that the Indian Ministry of Corporate Affairs has started a preliminary review of Adani Group’s financial statements.

–Assisted by Catherine Bosley, Divya Patil, Rajesh Kumar Singh, Harry Suhartono and Ishika Mookerjee.