Bonds of the Indian billionaire’s flagship firm plunged to distressed levels in US trading, and the company abruptly pulled a record domestic stock offering after the Adani group suffered a $92-billion market crash. Banks either want more collateral for loans, or are scrutinising the value of the company’s debt to lend against. 

The question now is what Adani will do to prevent the turmoil from getting out of control, especially after the setback with the stock offering, which would have been India’s largest and further raise his global profile. The risk is also that more financial institutions start to scrutinize their exposure to a business empire that sprawls from ports to green energy. 

“The biggest risk is if Adani Group faces a severe deterioration in access to financing, particularly at its highly leveraged entities,” Leonard Law, a senior credit analyst at Lucror Analytics, wrote in a note. “This is as a liquidity crunch at any one of the entities may have a ripple effect on financing access for the wider group. That said, the group can likely continue to raise funds from onshore banks and bonds for now.” 

Citigroup’s wealth arm has also joined Credit Suisse Group AG in stopping the acceptance of securities of Adani’s group of firms as collateral for margin loans as banks ramp up scrutiny of the Indian tycoon’s finances. 

Hindenburg Research last week accused the Adani group of “brazen” market manipulation and accounting fraud, setting off an intense selloff in the stocks. Adani has repeatedly denied the allegations, called the report “bogus”, and threatened legal action. 

Adani Enterprises’ decision to withdraw its follow-on share sale won’t have any impact on its existing operations and future plans, Adani said in a video speech on Thursday. “The fundamentals of our company are strong. Our balance sheet is healthy and assets, robust. Once the market stabilises, we will review our capital market strategy.” 

Eyes are also on what the government of Prime Minister Narendra Modi, widely perceived to have close ties to Adani, might do to help ease the group’s dire straits given the latter’s importance to the nation’s economy. Hindenburg’s report has also raised questions over India’s corporate governance, while Adani himself has called the report an attack on the country itself. 

Matters escalated on Wednesday with a record 28% plunge in Adani Enterprises. It subsequently abandoned a $2.4-billion follow-on share sale, even though it was fully subscribed with backing from prominent Indian and Gulf investors. 

“It’s unusual for a secondary offering like this to be canceled,” said Ben Silverman, director of research at VerityData. “Pulling an offering at the last minute doesn’t inspire a lot of confidence right now.”

Bonds issued by Adani Ports & Special Economic Zone and Adani Green Energy dropped the most in global secondary trading on Wednesday. Some notes of the two companies yield more than 30%, way over the average investment grade yield of 4.96% and junk bond yield of 8.14%.

Adani Ports’ 3.375% bond due July 2024 tumbled more than 20 cents on the dollar to 69.75 cents in investment-grade secondary trading, according to Trace data. At least four other Adani Ports bonds hit distressed levels, falling to 69 cents or lower.

Adani Green Energy’s 4.375% bond due in September 2024 declined more than 12 cents on the dollar to 66.75 cents in high-yield secondary trading, according to Trace data. 

Adani Enterprises had secured full subscription for India’s largest follow-on share sale on Tuesday, the final day for bids, amid a last-minute surge in interest by existing shareholders and institutional investors. The expected completion of the deal was seen as a victory for Adani. 

Still, with the company stock closing Wednesday at 2,135.35 rupees, investors who had bought at the offer range of between 3,112 rupees to 3,276 rupees would be sitting on immediate big losses.

“The problem now is that the dynamics are becoming a self-reinforcing negative feedback loop and investors are now just dumping the shares and asking questions later,” said Peter Garnry, head of equity strategy at Saxo Bank A/S. BM/DM