Think you had a tough week last week? Spare a thought for Gautam Adani. The multi-profile Indian magnate known as “Modi’s Rockefeller” lost $12 billion, on paper, in four days, according to Forbes. And that’s a good thing for India.
In case you were worried, Adani still has more than $60 billion left, on paper, making him Asia’s third-richest human. The poor house does not beckon quite yet. But his ties to his nation’s leader don’t make him a one-way bet anymore. Some pesky workings of democracy got in the way: independent regulators and a free press.
Adani and Prime Minister Narendra Modi go back a long way, to their joint home state of Gujarat, a polity of 64 million in India’s Northwest. The two share appealing up-from-humble-beginnings personal stories: Adani, now 58, is a college drop-out who kicked around Mumbai’s diamond industry, then moved back home to join his brother importing industrial plastics. He stuck up for Modi at the politician’s low point, when he was Gujarat’s chief minister in the early 2000s. The regional business elite was castigating him for allowing ethnic riots that killed 1,000 Muslims.
Modi didn’t forget the good turn. When he swept into the prime minister’s chair in 2014, he flew to New Delhi on Adani’s corporate jet.
At that time, Adani owned a regional port and power company. Seven years later, that’s mushroomed into a commodities and infrastructure empire that spans coal to solar power, airports to special economic zones. The not-particularly invisible hand of Modi’s state has been instrumental. A watershed moment came in 2018, when Adani won privatization tenders for six airports despite zero experience in that industry. The finance minister in Kerala, one of the states that was steamrolled in the process, called it “an act of brazen cronyism.”
Adani’s six listed companies are managed with similar care. The oligarch himself retains 75% ownership in all of them, allowing the 25% free float that is minimum under Indian law. Control of these “public” shares is shrouded in mystery. Most institutional investors avoid anything with the Adani name on it, and trading volumes are minuscule. That’s led to suspicion that Adani’s friends in government hold blocks through off-shore companies, so they can benefit quasi-legally from the favors they do him.
Meanwhile Adani seems to have free run of India’s large state banking sector to pile on leverage. Debt at Adani Green Energy Ltd. (ticker: ADANIGR. India), for instance, weighs in at 8.7 x EBITDA, according to company figures parsed by independent website Adaniwatch.org Junk bond investors will rarely touch anything over 5 times. And that’s just one subsidiary. Endless borrowing, insider shareholders and the promise of ever-more state largesse have made for soaring valuations, or “valuations” to speak more properly. Adani Enterprises (ADE. India), the corporate mother ship, was trading around 100 times forward price/earnings after an 11-fold run-up over the past year. !
Then the unexpected happened: Someone looked into the whole thing. To be specific, India’s National Securities Depository, which minds foreign portfolio investment, froze the accounts of three Mauritius-based funds, presumably for inadequate disclosure of their beneficial owners. It happened that these funds had 95%-plus of their capital invested in Adani companies, owning chunks up to 8%.
After two weeks when no one paid attention, NDS staff tipped off a crack team at the Economic Times of India, which ran with the story June 14. Adani Enterprises stock fell 11% in two sessions.
The hard-boiled view on these events is to consider buying on the dips, figuring the Adani-Modi axis will quash any further scandal and return to pumping the bubble further. The ball has now been passed to the Securities and Exchange Board of India for a formal investigation into price manipulation, which could quietly die on the vine. Adani stocks bounced on Friday. A U.S. fund manager wrote me out of the blue flagging Adani Ports and Special Economic Zone (ADSEZ. India) as a top pick in emerging markets. So someone is betting on the it-will-blow-over thesis.
The broader, human view is to take heart that the world’s largest democracy can still muster democratic checks on power, despite the prevailing narrative about Modi’s creeping authoritarianism. (There’s also the small matter of India holding free and fair elections. Modi lost won he badly wanted to win in West Bengal state last month.)
Modi didn’t invent crony capitalism in India, though he may be taking it to the next level with Adani, and it won’t end when he leaves the scene. But Putin or Xi he isn’t. India won’t allow him to be.