The stock rout in Gautam Adani’s beleaguered empire intensified to more than US$100 billion, as the fallout from a short-seller’s fraud allegations leads the Indian billionaire to pull a record equity offering and announce a review of his capital market strategy.

Adani Enterprises Ltd slumped more than 15% before paring some losses. The stock plunged 28% on Wednesday, prompting the company to abandon a US$2.4 billion follow-on share sale to insulate investors in the offering from potential losses. Most of the other nine stocks in the group also fell.

The meltdown has wiped out US$104 billion in market value for the group’s stocks since US short seller Hindenburg Research made fraud allegations against the conglomerate. The group’s bonds also plunged to distressed levels, with banks either demanding more collateral for loans or scrutinising the firms’ debt value 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 scrutinise 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 Inc’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 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 the US$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 cancelled,” said Ben Silverman, director of research at VerityData. “Pulling an offering at the last minute doesn’t inspire a lot of confidence right now.”

Stress also spread to the credit market.

Bonds issued by Adani Ports & Special Economic Zone Ltd and Adani Green Energy Ltd 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 Group has US$34.7 million of coupon payments due this week on its dollar bonds.

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 sitting on immediate big losses.

Looking at valuations, “there could be more downside to the Adani group shares”, said Nitin Chanduka, an analyst at Bloomberg Intelligence. “Banks could take a knock in case foreign outflows intensify and there is a default on bonds but so far they haven’t missed interest payments.” 

  - Bloomberg