Hindenburg report fallout: Moody's downgrades outlook on 4 Adani Group companies to negative

Moody's downgraded on Friday the rating outlook for some Adani Group entities, while MSCI said it would cut the weightings of some companies in its indexes, the latest blows for the Indian conglomerate thrust into crisis by a short seller's report.

New York-based short-seller Hindenburg Research in a Jan. 24 report accused the Adani group of stock manipulation and improper use of offshore tax havens that obscure the extent of stock ownership of Adani family members in group firms.

The conglomerate, which has denied any wrongdoing, has since been pummelled by a stock rout that has wiped some $110 billion off the value of its main seven listed firms.
On Friday, Moody's announced the downgrade of the rating outlook to negative from stable for four firms - Adani Green Energy, Adani Green Energy Restricted Group, Adani Transmission Step-One Ltd, and Adani Electricity Mumbai Ltd.

"These rating actions follow the significant and rapid decline in the market equity values of the Adani Group companies following the recent release of a report from a short-seller highlighting governance concerns in the group," Moody's said.

Separately, MSCI re-assessed the size of some companies' free floats, having determined there was "sufficient uncertainty" surrounding some investors in Adani companies. It embarked on the review after feedback from market participants.

In addition to the group's flagship firm Adani Enterprises, MSCI said it planned to cut the weightings for Adani Total Gas (ADAG.NS) - a venture with France's TotalEnergies (TTEF.PA) and Adani Transmission (ADAI.NS), a power transmission company.

It will also reduce the weighting of ACC (ACC.NS), a major Indian cement company acquired from Switzerland's Holcim last year but which is not one of the Adani group's main seven listed firms.

Hindenburg founder Nathan Anderson has said MSCI's review was a "validation of our findings". Adani Group did not respond to a request for comment from Reuters on Friday.
The four companies had a combined weighting of 0.4% in the MSCI emerging markets index (.MSCIEF) as of Jan. 30. The changes take effect on March 1.

"The lower free float will require passive investors to sell stock to reduce their tracking error with the index," said Brian Freitas, a Periscope Analytics analyst who publishes on Smartkarma.
He estimated there would be around $570 million to sell by passive funds across Adani Enterprises, Adani Total Gas and Adani Transmission on Feb. 28.

The stock rout has heightened worries that the loss of confidence in the group led by billionaire Gautam Adani could evolve into a loss of confidence in Indian businesses generally. There have been protests in parliament, with lawmakers demanding an investigation. Adani Enterprises, a coal mining firm and the group's incubator for new projects, was also forced to shelve a $2.5-billion stock offering.

Shares in Adani Enterprises closed down 4 per cent on Friday after a plunge of 11 per cent  the previous day when MSCI flagged the changes. Adani Transmission and Adani Total Gas slid 5% on Friday, while ACC lost 2 per cent.