Star Investor’s $1.9 billion Adani bet sends shares skyrocketing

(Bloomberg) – One of the biggest names in emerging market investing is betting $1.9 billion on Gautam Adani’s empire. This is the most significant show of support from a major wealth manager since a short-seller report cost $153 billion from the Indian conglomerate’s market.

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Rajiv Jain’s GQG Partners bought shares in four companies from an Adani family trust at discounts to Thursday’s close, according to a statement by the Adani Group and stock documents. All 10 Adani Group shares rose in Mumbai on Friday, with their combined market value rising by about $8 billion. This is likely to be the largest rise since Hindenburg Research’s Jan. 24 report.

Jain’s investment is a vote of confidence at a crucial time for the ailing group, which has been trying in recent weeks to repair an image tarnished by Hindenburg’s allegations of accounting fraud and stock price manipulation. After repeatedly denying those allegations, Adani has sought to reassure bondholders, even reducing aggressive growth targets to allay investor concerns.

“It’s surprising, but they’ve concluded that this is a good investment opportunity that many others may not have tried to analyze or decipher,” said Deepak Jasani, head of retail research at HDFC Securities Ltd. “Maybe they are worth seeing at these low ratings. They may want to stake large sums of money in India and have seized this opportunity.”

Adani is a bold bet for GQG chairman Jain, who is known to generally favor safe, defensive stocks in companies with what he calls bulletproof balance sheets.

The story goes on

Born and raised in India, Jain made his name as a star fund manager for emerging markets at Swiss firm Vontobel Asset Management. He later co-founded GQG and grew it into an $88 billion powerhouse with investments in industries like oil, tobacco and banking. In 2022, when most money managers were watching clients pull cash from their funds as markets plummeted, Florida-based GQG was thriving. The company attracted $8 billion in new investment, and three of its four flagship funds outperformed benchmark indices by a wide margin.

In an interview Thursday after announcing the investment, Jain said he first looked at billionaire Adani’s port-to-energy empire more than five years ago, but that the shares weren’t “bargain” enough until recently had been to take a position.

After Hindenburg’s report called the conglomerate’s meteoric rise the “biggest hoax in company history,” nearly two-thirds of its market value disappeared, with losses at times reaching $153 billion. Shares rallied this week on renewed efforts by the group to reassure investors during a three-day roadshow in Singapore and Hong Kong.

READ: Adani to Host Fixed Income Roadshow in Dubai, London & US Cities

The flagship Adani Enterprises Ltd. Soared 14% on Friday, heading for its highest close since Feb. 10. The stock is up more than 30% over the past three sessions.

Adani Total Gas Ltd. was hit the hardest among the 10 corporate stocks in the flight, plummeting more than 80%. The flagship’s shares lost more than half of their value.

Ratings for the group have similarly plummeted. Adani Enterprises is trading at less than half of its expected 12-month earnings, while the multiples for Adani Transmission Ltd. and Adani Green Energy Ltd. dropped by more than two thirds.

“What’s missing here, which nobody has talked about, are phenomenal, irreplaceable assets,” Jain said. “You have to be greedy when people are afraid. When parties happen, we stand on the sidelines most of the time and watch people dance.”

GQG bought shares in Adani Ports and Special Economic Zone Ltd. — considered the group’s crown jewel — down 4.2% at Thursday’s close, resulting in a 4% share. It bought Adani Green Energy and Adani Transmission at a discount of 5.7% for 3.5% and 2.5% stakes, respectively, and Adani Enterprises at a discount of 12.2% for a 3.3% stake. Jefferies brokered the deal.

Probably GQG’s least surprising bet is Adani Ports, which has been touted by investors for its strong operations. The stock is the group’s best-covered outside of cement-related acquisitions, with a buy rating from all 21 analysts tracked by Bloomberg.

The analysts at JM Financial Ltd. expect Adani Ports to generate Rs.140 billion (US$1.7 billion) in free cash flow, which they believe is significantly higher than the forecast debt repayment obligations of around Rs.110 billion in FY2024 and 2025.

Jain said his team met with Adani management last summer and he sees the investment will help advance India’s economy and energy infrastructure, including energy transition goals.

Adani Ports was up more than 8% on Friday. Adani Transmission and Adani Green rose around the 5% limit.

Regulated Assets

In an interview with Bloomberg TV on Feb. 23, Jain said that while Adani’s implosion hasn’t changed his view of India as a whole – where GQG is overweight – “Adani, specifically, has a different decision to make.”

“These are regulated assets,” unlike Enron, he said, adding that India’s “banking system is fine.”

While GQG’s investment should help “tactically support” struggling Adani shares, investors will await the completion of a court-ordered investigation into Hindenburg’s allegations against Adani, said Nitin Chanduka, strategist at Bloomberg Intelligence in Singapore.

India’s Supreme Court on Thursday set up a six-person panel to examine the bombing report. It also asked the Securities and Exchange Board of India to investigate any manipulation of Adani shares and report its findings within two months.

The Adani group said it welcomed the order and that it “will bring finality in a timely manner”.

Desperate to sell

GQG’s support could stem further declines near-term, but the discounts also show the seller was desperate, said Abhay Agarwal, fund manager at Piper Serica Advisors.

When asked if the Adani trust was keen to sell, Jain denied the characterization, noting that some of the stocks are up more than 30% from recent lows.

Jain is a believer in the conglomerate and said GQG’s “advantage” understands how utilities work better than others.

He pointed out that Adani Enterprises has generated returns of about 30% per year in dollar terms since it went public in 1994, outperforming some of the world’s best-known companies.

“What would you say this company is?” said Jain. “I’m just suggesting that you generally don’t have fraud cases that go on for 30 years.”

Of course, Jain has had his share of missteps. His big bet on Russia — 16% of all his emerging-market fund money was invested in the country in early 2022 — backfired when President Vladimir Putin invaded Ukraine. It began withdrawing as the war clouds began to gather, but failed to liquidate all of the fund’s holdings, causing it to plummet 21% last year, becoming the only major GQG fund to underperform its benchmark.

Jain’s decision to underweight China was also costly as the government lifted the strict Covid lockdowns that were crippling the economy.

“In my view, the decline in the Adani family of companies’ stock prices was less about the quality of the business and more about valuation,” said Gary Dugan, Chief Executive Officer of the Global CIO Office. “Mr. Jain made a bet that current stock prices offer value. We’ll have to see if the market agrees.”

GQG Partners’ Australian depositary receipts fell 3% on Friday, the most since February 17.

–Assisted by Malavika Kaur Makol, Brian Chappatta and Peter Vercoe.

(Updates prices throughout and adds Dugan’s comment at the end.)

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