Adani fallout: Why Australian investors needn't be worried
More than $100 billion has been wiped off the group's value so far, but Australian investors have limited direct exposure.
The fallout from a US short-seller’s scathing report into Adani – which alleges stock manipulation and fraud – has so far wiped more than $100 billion off the Indian conglomerate’s value.
Adani’s sprawling interests span ports, power, airports, rail, and coal mines – including the contentious Carmichael thermal coal mine and rail project in Queensland, which began exporting coal last year and aims to produce 10 million tonnes a year.
But while the controversy surrounding the approval of the Carmichael coal mine has made Adani a household name in Australia, Morningstar ESG analyst Erica Hall says local investors have negligible exposure to its array of listed companies.
“If you look at the data what strikes me is very little exposure, but Adani has been controversial in this market for some time after local banks refused to lend to the proposed Adani Carmichael Queensland coal mine,” Ms Hall says.
She says most Australian funds don’t have any holdings in Adani, while some emerging market funds have a very small exposure.
“Emerging market index funds have the highest portfolio weighting exposure across Adani companies at approximately 80 basis points, but this is likely in line with their benchmark,” Ms Hall says.
“Vanguard as one of the largest index managers in Australia has the highest market value on the Morningstar database. However, in the context of the overall size of the portfolio the actual exposure is small.”
For context, Ms Hall says Vanguard’s $1.6 billion emerging markets index fund had just $12 million dollars exposure to Adani’s listed companies as of 31 December.
A company in crisis
Adani has been in crisis mode since the publication of a report by US short-seller Hindenburg Research a week ago, which alleges the group’s founder and chairman Gautam Adani is “pulling the largest con in corporate history” through “a brazen stock manipulation and accounting fraud scheme over the course of decades.”
Adani has denied the allegations, labelling the report as a “malicious combination of selective misinformation and concealed facts.”
The plunge in Adani shares is one of the biggest wipeouts in corporate history.
Adani’s Australian business, Bravus has also hit back at claims in the report of potentially fraudulent financial transactions connected to its Carmichael coal mine.
“All our businesses are Australian companies that comply with Australian corporations and securities legislation,” the group said in a statement.
Australia’s corporate regulator, the Australian Securities & Investments Commission (ASIC) declined to comment on whether it’s investigating the matter, but a spokesperson told Morningstar as with all reports of misconduct that are brought to their attention, ASIC “will assess the allegations to determine if further inquiries are warranted.”
Coal prices to support local operations
While the fallout continues across Adani’s global business, Morningstar analysts say it shouldn’t impact the viability of its Queenland coal mine, which began exporting coal in December and has been benefiting from soaring thermal coal prices.
Morningstar’s director of equity research Mathew Hodge says while coal prices have come off their highs recently, the thermal coal price remains at sky high levels relative to history and the mines are generating ‘amazing’ returns.
“In the event Adani gets into financial distress, from the point of view of thermal coal supply and prices, now the mine is built and producing, it's unlikely to have an impact,” Mr Hodge says.
“So long as the mine is built and profitable, we'd expect that supply to remain in the market, even if there is an outside chance of a change in ownership.”
Morningstar’s mining analyst Jon Mills added supply-demand constraints will continue to underpin prices.
“On the thermal coal side, there’s very few new mines being built in the west,” he says.
“So if you’ve got diminishing supply with demand increasing – and we’re now burning more thermal coal than ever on a global basis – that’s obviously bullish for prices and hence, the Carmichael coal mine.”
Mills says thermal coal prices remain elevated compared with historical values as the Russia-Ukraine war reinforces the importance of energy security.