Tight liquidity makes Adani Group dollar bonds a tough buy or sell

Some investors planning to take advantage of recent price swings in dollar bonds issued by India’s troubled Adani Group are struggling to find counterparties, which is preventing them from buying more paper or betting on further drops in value.

Dollar bonds issued by Adani Group entities fell sharply after short-seller Hindenburg Research published a report on Jan. 24 accusing the conglomerate of improper use of offshore tax havens and stock manipulation. It also said it had taken short positions in those bonds.

But the debt securities have pared losses in recent days.

Adani Green Energy bonds due in 2024, for instance, were up at about 75 cents on the dollar on Friday after hitting a record low of about 62 cents last week, according to Tradeweb data. Those same bonds were trading at about 95 cents before the short-seller report.

One U.S. holder of Adani bonds looked to buy more this week but said his trade orders were not being executed because of lack of available paper.

Another U.S. based emerging markets focused money manager who held Adani bonds said he was sitting tight on his position. The bonds were not easily available because most holders saw little default risk for now, and needed to keep them as part of their funds as a quasi-exposure to India.

Indian companies have not been prolific issuers of U.S. dollar bonds and Adani’s bonds with secured assets were seen as providing direct, quality exposure to the fast-growing economy.

Sell-side banks, the money manager said, kept limited inventory of the paper to avoid exposure to a group that was still a risky bet given it was working through regulatory scrutiny and attempting to placate investor unease created by the short-seller’s report.

Another source, a U.S. based hedge fund manager, said he was looking to short Adani’s dollar bonds after the Hindenburg report but was finding it difficult to borrow bonds to sell.

Bid-offer spreads, a measure of liquidity, widened significantly after the Hindenburg report, Tradeweb data showed. Widening spreads mean the difference between the price sellers are asking and buyers are willing to pay is increasing, making it harder and more costly for investors to trade in and out of positions.

For the $500 million Adani Ports and Special Economic Zone bonds due in 2027, for example, that spread doubled since the report came out when compared to its average since the beginning of the year, according to Tradeweb data and Reuters calculations.

Most of some $8 billion of Adani firms’ outstanding bonds fell below the 70 cents on the dollar mark – which is seen as distressed territory – after the Hindenburg report.

But even as S&P Global cut its outlook on Adani Ports and Special Economic Zone and Adani Electricity to negative from stable last week, citing governance risks and funding challenges for the Indian conglomerate, the bond prices recovered to move out of distressed territory.

In a new blow to Adani, Moody’s downgraded on Friday the ratings outlook for some Adani Group companies, while MSCI said it would cut the weightings of some in its stock indexes.

Since Hindenburg’s report, the Indian conglomerate, which has denied any wrongdoing, has seen more than $100 billion wiped off the value of its seven listed firms.

(Reporting by Davide Barbuscia and Carolina Mandl; Editing by Shankar Ramakrishnan, Mark Potter and Anna Driver)

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