(Bloomberg Opinion) — One of the biggest names in emerging-market investing is betting $1.9 billion on Gautam Adani’s empire, in the most significant show of support from a major money manager since a sales report in short slashed $153 billion from the Indian conglomerate’s market. worth.
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Rajiv Jain’s GQG Partners bought shares in four companies from an Adani family trust at discounts to Thursday’s closing prices, according to an Adani Group statement and exchange documents. All 10 Adani Group shares rose in Mumbai on Friday, with their combined market value rising by around $8 billion. That will be the biggest increase since the Hindenburg Research report on January 24.
Jain’s investment comes as a vote of confidence at a crucial time for the embattled group, which has spent the past few weeks trying to repair an image damaged by Hindenburg’s accusations of accounting fraud and share price manipulation. After repeatedly denying those accusations, Adani has tried to reassure bondholders and has even lowered aggressive growth targets to help assuage investor concerns.
“It is surprising, but they have come to the conclusion that this is a good investment opportunity, which many others may not have tried to analyze or figure out,” said Deepak Jasani, head of retail research at HDFC Securities Ltd. “They can be seeing Lots of value at these depressed valuations. They may be looking to deploy large sums in India and have seized on this opportunity.”
Adani is a bold bet for GQG chairman Jain, who is known to prefer safe, defensive stocks in 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. Later, he co-founded GQG and built it into an $88 billion powerhouse with investments in industries like oil, tobacco, and banking. In 2022, when most asset managers saw clients pull cash out of their funds as markets crashed, Florida-based GQG thrived. The firm attracted $8 billion in new investment, and three of its four flagship funds outperformed benchmark indices by wide margins.
In an interview Thursday after the investment announcement, Jain said he first looked at billionaire Adani’s port-to-energy empire more than five years ago, but until recently the shares weren’t a “bargain” enough to make a decision. position.
After the Hindenburg report called the conglomerate’s meteoric rise the “biggest scam in corporate history,” nearly two-thirds of its market value evaporated, with losses reaching $153 billion at one point. Shares have staged a rally 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 Adani Enterprises Ltd. jumped 14% on Friday to head for its highest close since February 10. The shares rose more than 30% in the previous three sessions.
Adani Total Gas Ltd. was the hardest hit among the group’s 10 stocks in the loss, down more than 80%. The flagship’s shares lost more than half their value.
Valuations for the group have similarly tumbled. Adani Enterprises is trading at less than half its 12-month forward earnings, while multiples at Adani Transmission Ltd. and Adani Green Energy Ltd. have fallen by more than two-thirds.
“What’s missing here, that nobody talked about, is that these are phenomenal, irreplaceable assets,” Jain said. “You have to be greedy when people are afraid. Whenever there are parties, we stand on the sidelines watching people dance most of the time.”
GQG bought shares in Adani Ports and Special Economic Zone Ltd., considered the group’s crown jewel, at a 4.2% discount from Thursday’s close, resulting in a 4% stake. Bought Adani Green Energy and Adani Transmission at a 5.7% discount for 3.5% and 2.5% stakes, respectively, and Adani Enterprises at a 12.2% discount for a 3.3% stake . Jefferies brokered the deal.
The least surprising of GQG’s bets is probably Adani Ports, which has been touted by investors for its strong operations. The stock is the group’s best hedged outside of its cement-related acquisitions, with a Buy rating from all 21 analysts tracked by Bloomberg.
Analysts at JM Financial Ltd. expect Adani Ports to generate Rs 140 billion ($1.7 billion) of free cash flow, which they say is substantially higher than its projected debt payment obligations of around 110,000 crores during fiscal years 2024 and 2025.
Jain said his team met with Adani’s management last summer and sees the investment will help advance India’s energy economy and infrastructure, including energy transition goals.
Adani Ports rose more than 8% on Friday. Adani Transmission and Adani Green raised by the 5% cap.
Regulated Assets
In a February 23 interview with Bloomberg TV, Jain said that while Adani’s implosion did not change his view of India in general, where GQG is overweight, “Adani, specifically, is a different call.”
“These are regulated assets” unlike Enron, he said, adding that India’s “banking system is fine.”
While the GQG investment should help provide “tactical support” to Adani’s battered stock, investors will wait for a court-ordered investigation into Hindenburg’s allegations against Adani to conclude, said Nitin Chanduka, a Bloomberg Intelligence strategist at Singapore.
India’s Supreme Court on Thursday set up a six-member panel to investigate the bombing report. It also asked the Securities and Exchange Board of India to investigate any manipulation of Adani’s shares and report her findings within two months.
The Adani Group said it welcomed the order and that it “will bring finality within a certain timeframe.”
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, a fund manager at Piper Serica Advisors.
Asked if Adani’s trust was desperate to sell, Jain disputed the characterization, noting that some of the shares are up more than 30% from recent lows.
Jain trusts the conglomerate, saying GQG’s “advantage” is understanding how utility companies operate better than others.
He noted that Adani Enterprises has generated returns of about 30% a year in dollar terms since it went public in 1994, outperforming some of the world’s best-known companies.
“What would you say that company is?” Jain said. “I’m just saying that, in general, there are no frauds that last 30 years.”
No doubt, Jain has had its share of mistakes. His big bet on Russia — 16% of all the money in his emerging markets fund was invested in the country by early 2022 — fell through when President Vladimir Putin invaded Ukraine. It started to pull back as the war clouds began to gather, but it did not sell off all of the fund’s positions and as a result fell 21% last year, making it the only major GQG fund to underperform. your benchmark.
Jain’s decision to underweight China has also been costly as the government lifted strict Covid lockdowns that were crippling the economy.
“In my view, the drop in Adani family share prices was not so much due to the quality of business operations but more substantially due to valuation,” said Gary Dugan, chief executive officer of the Global CIO Office. . “Mr. Jain has bet that current share prices offer value. We will have to see if the market agrees.”
GQG Partners’ Australian depository receipts fell 3% on Friday, the biggest drop since February 17.
–With the assistance of Malavika Kaur Makol, Brian Chappatta and Peter Vercoe.
(Updates prices and adds Dugan’s comment at the bottom.)
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