(Bloomberg) – One of the biggest names in emerging markets investing is betting $1.9 billion on Gautam Adani’s empire, in the biggest show of support from a major investment manager. funds since a report on short sellers caused the Indian conglomerate market to lose $153 billion in value.
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Rajiv Jain’s GQG Partners purchased shares of four companies from an Adani family trust at discounted prices from Thursday’s closing prices, according to an Adani Group statement and exchange documents. All 10 Adani Group shares soared in Mumbai on Friday, their combined market value rising by around $8.5 billion. This is expected to be the largest increase since Hindenburg Research’s Jan. 24 report.
Jain’s investment is a vote of confidence at a crucial time for the beleaguered group, which has spent the past several weeks trying to repair an image damaged by accusations of Hindenburg’s accounting fraud and stock price manipulation. After repeatedly denying the allegations, Adani tried to reassure bondholders and even cut aggressive growth targets to help ease investor concerns.
“It’s surprising, but they came to the conclusion that this is a good investment opportunity, which many others may not have tried to analyze or decipher,” said said Deepak Jasani, head of retail research at HDFC Securities Ltd. see a lot of value in these depressed valuations. They may be looking to deploy large sums to India and have seized the opportunity.
Adani is a bold bet for GQG chairman Jain, who is known to largely prefer safe and defensive stocks from companies that have what he calls bulletproof balance sheets.
Born and raised in India, Jain made a name for himself as a star emerging markets fund manager at Swiss firm Vontobel Asset Management. He later co-founded GQG and turned it into an $88 billion powerhouse with investments in industries like oil, tobacco, and banking. In 2022, when most asset managers saw clients pull money out of their funds as markets cracked, Florida-based GQG thrived. The company attracted $8 billion in new investment and three of its four flagship funds beat benchmarks by wide margins.
In an interview on Thursday after the investment announcement, Jain said he first looked at billionaire Adani’s energy ports empire more than five years ago, but that until recently, actions were not enough to take a position.
After Hindenburg’s report called the conglomerate’s meteoric rise ‘the biggest scam in corporate history’, nearly two-thirds of its market value evaporated, with losses reaching as high as $153 billion dollars at any given time. Shares rebounded this week amid renewed efforts by the group to appease investors during a three-day tour of Singapore and Hong Kong.
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Flagship product Adani Enterprises Ltd. jumped 14% on Friday to head for its highest close since Feb. 10. The stock jumped more than 30% in the previous three sessions. Adani Ports and Special Economic Zone Ltd. – considered the crown jewel of the group – climbed 10% to be on track for its biggest gain since April 2021.
Adani Total Gas Ltd. was the hardest hit among the group’s 10 stocks in the rout, plunging more than 80%. The shares of the flagship have lost more than half of their value.
The group’s valuations also fell. Adani Enterprises is trading at less than half of its 12-month forward earnings, while Adani Transmission Ltd. and Adani Green Energy Ltd. are down by more than two-thirds.
“What’s missing here, what no one has talked about, is that these are phenomenal and irreplaceable assets,” Jain said. “You have to be greedy when people are scared. Whenever there are parties, we stay away watching people dance most of the time.
GQG bought shares of Adani Ports at a 4.2% discount at Thursday’s close, resulting in a 4% stake. It bought Adani Green Energy and Adani Transmission at a discount of 5.7% for stakes of 3.5% and 2.5%, respectively, and Adani Enterprises at a discount of 12.2% for a stake of 3, 3%. Jefferies brokered the deal.
Adani Transmission and Adani Green exceeded the 5% limit on Friday.
Probably the least surprising of GQG’s bets is Adani Ports, which has been touted by investors for its strong operations. The stock is the best hedged in the group outside of its cement-related acquisitions, with a buy rating from 21 analysts tracked by Bloomberg.
Analysts at JM Financial Ltd. expect Adani Ports to generate 140 billion rupees ($1.7 billion) of free cash flow, which they say is significantly above its expected debt repayment obligations of around 110 billion rupees in fiscal years 2024 and 2025.
Jain said his team met with Adani management last summer and he sees the investment helping to advance India’s energy economy and infrastructure, including energy transition goals.
In a Feb. 23 interview with Bloomberg TV, Jain said that while Adani’s implosion hasn’t changed his view of India as a whole – where GHQ is overweight – “Adani, in particular, is a different call to make.”
“These are regulated assets” unlike Enron, he said, adding that “India’s banking system is doing well.”
While GQG’s investment should help provide “tactical support” for Adani’s battered stock, investors will await the conclusion of a court-ordered investigation into Hindenburg’s allegations against Adani, strategist Nitin Chanduka said. at Bloomberg Intelligence in Singapore.
India’s Supreme Court set up a six-member panel on Thursday to investigate the bombshell report. It also asked the Securities and Exchange Board of India to review 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 within a specified time.”
Desperate to sell
GQG’s support could stem further declines in the 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 desperate to sell, Jain disputed the characterization, noting that some of the shares are up more than 30% from recent lows.
Jain has faith in the conglomerate and said GQG’s “advantage” includes the operation of utilities better than others.
He pointed out that Adani Enterprises has generated returns of around 30% per year in dollars since its IPO in 1994, outperforming some of the world’s best-known companies.
“How about this business? Jain said. “I’m just saying you don’t have 30-year-old cheats, usually.”
Admittedly, Jain has had his share of missteps. Its big bet on Russia – 16% of all money in its emerging markets fund was invested in the country at the start of 2022 – backfired when President Vladimir Putin invaded Ukraine. It began to pull back as the clouds of war began to gather, but did not liquidate all of the fund’s holdings and as a result it fell 21% last year, which makes it the only major GQG fund to underperform its benchmark.
Jain’s decision to underweight China was also costly as the government lifted strict Covid lockdowns that crippled the economy.
“In my view, the fall in Adani family stock price was not so much related to the quality of business operations as it was to valuation,” said Gary Dugan, managing director of the Global CIO Office. “Mr Jain has been betting that current share prices offer value. We will have to see if the market agrees.
GQG Partners’ Australian certificates of deposit fell 3% on Friday, the most since February 17.
–With help from Malavika Kaur Makol, Brian Chappatta and Peter Vercoe.
(Updated prices throughout.)
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