(Bloomberg) — Nearly a month after a bombastic short-seller report stripped Gautam Adani’s empire of $132 billion in market value, the Indian billionaire has hired top-tier US crisis communications and legal teams, scrapped and reined in an $850 million coal-fired power plant purchase in spending, repaid some debts and promises to repay more.
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The ports-to-power conglomerate, headed by Adani – who was once Asia’s richest person – hopes the playbook can bring back the narrative and calm nervous investors and lenders after it was revealed by US-based Hindenburg Research on January 24 was accused of accounting fraud, stock manipulation and other corporate misconduct. The Adani Group denies these allegations.
Since then, Adani and his helpers have been in damage repair mode. Alongside a campaign to portray themselves as responsible borrowers with prepayments and on-time debt payments, executives have also launched a series of meetings to reassure foreign bondholders who have been tapped by the tycoon for more than $8 billion in recent years.
To reflect the group’s recognition of the seriousness of the blow to its image, it has brought in Cookies CNC as its global communications consultant, Bloomberg News reported Feb. 11. The PR firm, which has joint headquarters in New York and Munich, is known for its work with other corporate explosions in recent years, such as the WeWork Inc. valuations implosion in 2019.
Cookies’ remit is to help the group regain investor confidence by providing the right context, not just on the Hindenburg allegations, but on other concerns that have been circling around the company’s fundamental strength, he said a person familiar with the matter.
Biscuit’s team works with Adani’s C-suite and communications team and could walk them through a “Situation Room” — the company’s term for a simulated crisis in which executives are bombarded with tweets, calls from journalists, and other stressful developments said the person, who asked not to be named as they are not authorized to speak publicly.
The Adani Group has also hired American law firm Wachtell, Lipton, Rosen & Katz to defend itself against the short seller’s claims, the Financial Times reported, citing unnamed sources. Wachtell is one of the most expensive law firms in the US and has experience defending clients from shareholder activist attacks.
A spokesman for the Adani Group did not immediately respond to a request for comment. Biscuits declined to comment, while Wachtell did not respond to requests for comment.
“Floating Questions”
The moves show that “Even after the stock market bloodbath, Adani can still afford good lawyers,” said Bhaskar Chakravorti, the dean of global business at Tufts University’s Fletcher School. “As a global investor, I still have unanswered questions.”
His comments reflect how the saga has grown beyond the group, casting a shadow over India’s ability to compete with China as an investment destination and sparking speculation from billionaire investor George Soros that it might even spur a “democratic revival” in the country could. Adani appears to be close to Prime Minister Narendra Modi, who has not raised the issue directly but has attacked opposition parties who have questioned his relationship with the billionaire by highlighting their own past corruption scandals.
Narrative aside, investors say they’re watching two things: the group’s high leverage ratio and its ability to generate cash flow after losing $2.5 billion in fresh funds on the withdrawn share sale.
Adani management has taken steps to address these concerns. They told bondholders in a phone call on Thursday that the goal is to bring the group’s net debt to EBITDA ratio below three times next year from the current 3.2, Bloomberg reported, citing those familiar with the matter Persons.
Adani Power Ltd. also has a plan to acquire a coal power plant project from DB Power Ltd. canceled in central India as part of the group’s overall effort to cut capital spending and conserve liquidity.
Observers say more such steps may be needed to reverse the crisis.
The group has some “very valuable assets” that generate cash flow, said Trinh Nguyen, senior economist at Natixis SA in Hong Kong. “If they want, they can sell these assets and find buyers.”
The repayment and prepayment of loans, both by the conglomerates’ entities and by the Adani family itself, have been part of a bid to reassure investors that the group has no liquidity or solvency problems despite halving its market value.
The tycoon and his family prepaid $1.11 billion in loans on Feb. 6 to recover pledged shares in three Adani Group companies.
The Ports Department on February 8 announced plans to repay debts worth Rs 50 billion a year from April. The conglomerate also plans to prepay a $500 million bridge loan that falls due next month after some banks refused to refinance the debt, Bloomberg News reported.
“Current market volatility is temporary,” the tycoon said in the earnings statement of Adani Enterprises Ltd., the group’s flagship company, which he said will “continue to operate with the twin objectives of moderate leverage and seeking strategic expansion opportunities to grow.” “
The conglomerate is now opting for slow and steady growth over the breakneck, mostly debt-driven expansion frenzy of recent years. Adani Group has rapidly diversified from its ports and coal-based businesses into airports, green energy, data centers, cement, digital services and media.
Global exam
It remains to be seen whether the new strategy will convince investors to move past the Hindenburg report, or whether the short seller’s allegations will continue to haunt the tycoon. The conglomerate has been noticeably reluctant to heed calls for an independent investigation into allegations of corporate wrongdoing and lack of regulatory compliance.
In recent earnings reports, Ambuja Cements Ltd. and Adani Green Energy, owned by Adani, that the group is considering hiring independent firms to address regulatory compliance issues in related party transactions and internal controls, but no firm announcements have been made to date.
Confirmation from a top-notch global auditor would be “a positive move,” Chakravorti said, although it “doesn’t sound like a thorough top-down opening of the books.”
The tycoon also plans to appoint a financial controller to oversee his various trusts and private companies, the Financial Times reported, citing unnamed sources.
For now, Adani appears to be getting some respite from the market’s losses after MSCI Inc. announced that it would delay implementation of the free float updates until the index review in May. Any index cut by MSCI on Adani Group stocks could impact funds holding $15 billion, Rebecca Sin, a senior analyst at Bloomberg Intelligence, wrote in a report on Thursday.
In the long term, it has to reckon with the fact that its central growth strategy – rapid expansion through cheap debt – is no longer within reach.
The rise in borrowing costs, particularly for the business units, follows the end of the global era of cheap financing, which the conglomerate has taken full advantage of.
“I don’t see it as a no-brainer, but they seem pretty confident that they can service their debt obligations,” said Kranthi Bathini, chief market strategist at WealthMills Securities Pvt. “We have to see how they refinance their debt.”
–Featuring Ishika Mookerjee, Finbarr Flynn, Giulia Morpurgo, PR Sanjai, Tasos Vossos, Archana Narayanan and Ashutosh Joshi.
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