One of the biggest names in investing in emerging markets is putting $1.9 billion on Gautam Adani’s empire. This is the biggest sign of support from a major money manager since a short-seller report cut $153 billion off the market value of the Indian conglomerate.
According to a statement from Adani Group and exchange filings, Rajiv Jain’s GQG Partners bought shares in four companies from an Adani family trust at prices lower than Thursday’s closing prices. All 10 Adani Group stocks went up in value in Mumbai on Friday, adding about $8.5 billion to their total market value. That will be the biggest jump since Hindenburg Research’s report on January 24.
The investment by Jain is a vote of confidence at a very important time for the troubled group. For the past few weeks, the group has been trying to fix its image after Hindenburg accused it of accounting fraud and manipulating share prices. After denying these claims over and over, Adani has tried to reassure bondholders and has even lowered its ambitious growth goals to make investors feel better.
Said Deepak Jasani, head of retail research at HDFC Securities Ltd-
“It is surprising, but they have come to a conclusion that this is a good investment opportunity, which many others may not have tried to analyze or decipher”
“They may be seeing a lot of value at these depressed valuations. They may be looking to deploy large sums in India and have snapped up this opportunity.”
Adani is a risky bet for GQG Chairman Jain, who usually likes safe stocks from companies with what he calls “bullet-proof balance sheets.”
Jain was born and raised in India. He became famous as a star emerging markets fund manager at Vontobel Asset Management in Switzerland. Later, he helped start GQG and turned it into a $88 billion powerhouse with investments in oil, tobacco, and banking, among other things. When the markets crashed in 2022, most asset managers saw their clients pull money out of their funds. However, Florida-based GQG did very well. The company got $8 billion in new investments, and three of its four flagship funds did much better than benchmark indexes.
In an interview Thursday, after the investment was announced, Jain said that he first looked at billionaire Adani’s ports-to-energy empire more than five years ago, but that until recently, the shares weren’t enough of a “bargain” for him to take a position.
Hindenburg’s report called the conglomerate’s meteoric rise the “largest con in corporate history.” As a result, nearly two thirds of its market value disappeared, and at one point, the company lost as much as $153 billion. This week, stocks went up because the group tried again to make investors happy during a three-day roadshow in Singapore and Hong Kong.
Adani will hold a Fixed-Income Roadshow in Dubai, London, and cities in the United States
Adani Enterprises Ltd.’s main stock rose 14% on Friday, putting it on track for its best close since February 10. The stock has gone up by more than 30% in the last three days. Adani Ports and Special Economic Zone Ltd., which is considered the group’s crown jewel, went up 10% and is on track for its biggest gain since April 2021.
The rout has hurt Adani Total Gas Ltd. the most out of the 10 stocks in the group. Its price has dropped more than 80%. The shares of the flagship lost more than half of their value. The group’s valuation has also gone down. Adani Enterprises is trading at less than half of its 12-month forward earnings, and the multiples for Adani Transmission Ltd. and Adani Green Energy Ltd. are down by more than two-thirds.
“What’s missing here, and what no one has said, is that these are amazing, irreplaceable assets,” Jain said. When people are afraid, you have to be greedy. Most of the time, when parties are going on, we just stand around and watch people dance.
GQG bought Adani Ports shares at a 4.2% discount to Thursday’s closing price. This gave them a 4% stake in the company. It bought 3.5% of Adani Green Energy, 2.5% of Adani Transmission, and 3.3% of Adani Enterprises at a discount of 5.7%, 12.2%, and 12.2%, respectively. Jefferies made the deal happen. Friday, both Adani Transmission and Adani Green went up by the maximum of 5%.
Adani Ports is probably the least surprising of GQG’s bets, since investors have been raving about how well it runs. Outside of its cement-related acquisitions, this stock is the most well-covered of the group. All 21 analysts tracked by Bloomberg recommend buying it.
Analysts at JM Financial Ltd. think that Adani Ports will have a free cash flow of 140 billion rupees ($1.7 billion), which is a lot more than its projected debt-repayment costs of about 110 billion rupees over the fiscal years of 2024 and 2025. Jain said that his team met with Adani’s leaders last summer and that he thinks the investment will help India’s economy, energy infrastructure, and energy transition goals move forward.
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In an interview with Bloomberg TV on February 23, Jain said that the collapse of Adani didn’t change his opinion of India as a whole, where GQG is overweight, but that “Adani, specifically, is a different call to make.” “Unlike Enron,” he said, “these assets are regulated.” He also said that India’s “banking system is fine.”
A strategist at Bloomberg Intelligence in Singapore, Nitin Chanduka, said that investors will wait until the end of a court-ordered investigation into Hindenburg’s claims against Adani before making any decisions. GQG’s investment should help provide “tactical support” to Adani’s stocks, which have been falling.
Thursday, India’s Supreme Court put together a six-person panel to look into the shocking report. It also asked the Securities and Exchange Board of India to look into any possible manipulation of Adani stocks and report back within two months. The Adani Group said it was happy about the order and that it will “bring finality in a time-bound manner.”
Desperate to Sell
The help from GQG could stop further drops in the near future, but Abhay Agarwal, a fund manager at Piper Serica Advisors, said that the discounts also show that the seller was desperate.
When asked if the Adani trust was in a hurry to sell, Jain said that wasn’t true, pointing out that some of the stocks had risen more than 30% from their recent lows. Jain is confident in the conglomerate and said that GQG’s “edge” is that it knows how utilities work better than other companies.
He said that since it went public in 1994, Adani Enterprises has made about 30% a year in dollar terms, which is more than some of the best-known companies in the world.
“What do you think that business is?” Jain said. “I’m just saying that, in general, frauds don’t last 30 years.”
Jain has definitely made some mistakes. When President Vladimir Putin invaded Ukraine, he lost a lot of money on his big bet on Russia. At the beginning of 2022, 16% of the money in his emerging-market fund was invested there. As war clouds started to form, he started to pull back, but he didn’t sell all of the fund’s holdings. As a result, the fund fell 21% last year, making it the only major GQG fund to do worse than its benchmark.
China has also paid a price for Jain’s decision to underweight it, since the government lifted strict Covid lockdowns that were hurting the economy.
“In my view, the fall in the Adani family of company share prices was not so much about the quality of the business operations but more substantially about valuation,” said Gary Dugan, chief executive officer at the Global CIO Office. “Mr. Jain has made the bet that current share prices offer value. We will have to see if the market agrees.”