Adani faces fresh risk as MSCI examines free float of its stocks

By Scott Murdoch and Shivam Patel

SYDNEY/NEW DELHI (Reuters) -India’s Adani Group faced fresh concerns on Thursday after financial index provider MSCI said it was reviewing the free float designation of some of its companies’ securities.

Billionaire Gautam Adani has seen some $110 billion wiped off the value of seven firms in the group he founded after U.S. short seller Hindenburg Research accused it of improper use of offshore tax havens and stock manipulation.

The Adani Group, which has denied any wrongdoing, did not respond to a Reuters request for comment on Thursday.

Analysts say a change in free float status could affect the weightings of MSCI index constituents, possibly triggering a shift by funds as many investments are aligned to such indexes.

“Some investors follow MSCI index as a gauge,” said Neeraj Dewan, director at Quantum Securities. “Depending on the outcome of the MSCI review, we could see more pressure on select Adani group stocks.”

The world’s largest stock investor, Norway’s sovereign wealth fund, said on Thursday it had sold out of the Adani Group since the start of the year, unloading stakes in three firms worth just over $200 million.

India’s opposition parties heckled Prime Minister Narendra Modi in the upper house of parliament on Thursday and demanded an investigation into the allegations against the Adani Group.

Modi, pointing to opposition leaders, said: “No matter how much mud you sling, the lotus will keep blooming,” referring to his party’s lotus flower symbol.

Free float uncertainty

“MSCI has determined that the characteristics of certain investors have sufficient uncertainty that they should no longer be designated as free float,” U.S.-based MSCI said.

“This determination has triggered a free float review of the Adani Group securities,” it added in a statement.

Free float is defined as the proportion of outstanding shares considered available for purchase in public equity markets by international investors.

In response to Thursday’s MSCI statement, Hindenburg Research founder Nathan Anderson wrote on Twitter: “We view this as validation of our findings”.

Some Adani company shares had rebounded this week but tumbled again after the MSCI announcement, with the group’s flagship Adani Enterprises down 11%.

Adani Transmission, Adani Total Gas and Adani Power were each down 5%, while Adani Ports and Special Economic Zone was down nearly 3%.

“The sentiment is affected by the MSCI announcement. It will lead to outflows if MSCI removes certain stocks,” said Ambareesh Baliga, a Mumbai-based independent market analyst.

The MSCI announcement marks the latest setback for Adani after Adani Enterprises was forced to abandon a $2.5 billion stock offering due to the market rout.

There was no reference to Adani stocks in a separate MSCI quarterly index review statement later on Thursday.

Indian opposition parties have seized on the crisis as an opportunity to corner Modi, who is eyeing a third term in elections next year. They accuse his administration of giving favours to the Adani Group, a charge denied by the government and the company.

Sporadic protests have taken place in parts of India as opposition parties demand investigations.

Meanwhile, tax authorities in the northern state of Himachal Pradesh inspected facilities of Adani Wilmar, the conglomerate’s consumer goods unit, over possible tax evasion, G.D. Thakur, a state official, told Reuters on Thursday.

“The tax authorities will ascertain the company’s claims and check if there is any tax evasion,” Thakur said.

Adani Wilmar confirmed there had been a visit by tax officials to one of its depot warehouses at Parwanoo, Himachal Pradesh on Wednesday evening.

“The officials did not find any irregularities in the operations and dealings conducted by the company,” Adani Wilmar said in a statement given to Reuters.

India’s markets regulator, the Securities and Exchange Board of India, is investigating the rout in Adani Group shares, a person with direct knowledge of the matter told Reuters.

And Moody’s rating firm has warned the share price declines could hit the group’s ability to raise capital, while India’s central bank is checking on lenders’ exposure.

(Reporting by Scott Murdoch in Sydney, Shivam Patel in New Delhi. Additional reporting by Nikunj Ohri in New Delhi and Chris Thomas, Bharath Rajeswaran and Rhea Binoy in Bengaluru; Editing by Kim Coghill, Jason Neely, Alexander Smith and Deepa Babington)