By Aditya Kalra, Jayshree P Upadhyay and Aditi Shah
NEW DELHI (Reuters) -Gautam Adani's flagship firm called off its $2.5 billion share sale in a dramatic reversal on Wednesday as a rout sparked by a U.S. short-seller's criticisms wiped billions more off the value of the Indian tycoon's stocks.
The withdrawal of the Adani Enterprises share offering marks a stunning setback for Adani, the school dropout-turned-billionaire whose fortunes rose rapidly in recent years in line with the stock values of his businesses.
"Today the market has been unprecedented, and our stock price has fluctuated over the course of the day. Given these extraordinary circumstances, the company’s board felt that going ahead with the issue will not be morally correct," Adani said.
"Our balance sheet is very healthy with strong cashflows and secure assets, and we have an impeccable track record of servicing our debt. This decision will not have any impact on our existing operations and future plans," the billionaire added in a statement to Indian exchanges.
Adani, whose global business interests span ports, airports, mining, cement and power, is battling to stabilise his companies and defend his reputation.
"Once the market stabilizes, we will review our capital market strategy," he added.
The Jan. 24 report has triggered an $86 billion erosion in market capitalisation of seven listed Adani Group companies. On Wednesday, a day after Adani's share sale closed, his group company stocks plummeted, with shares in Adani Enterprises plunging 28% and others also seeing sharp cuts.
A report by Hindenburg Research last week alleged improper use by the of offshore tax havens and stock manipulation by the Adani Group. It also raised concerns about high debt and the valuations of seven listed Adani companies.
Adani Group has denied the allegations, saying the short-seller's allegation of stock manipulation has "no basis" and stems from an ignorance of Indian law. The group has always made the necessary regulatory disclosures, it added.
"The pain hitting Adani companies was crippling, so the news that share sale is called off is troubling, as this was supposed to show the company is still believed in by its high net-worth investors," said Edward Moya, a New York-based senior market analyst at brokerage OANDA.
"To go through this exercise of a share sale and to call it off raises more questions."
Reuters reported earlier on Wednesday, citing a person with direct knowledge, that India's market regulator is examining the rout in the shares of Adani Group, looking into several of the allegations made by Hindenburg Research, and into any potential irregularities in a share sale by Adani Enterprises.
Hindenburg had disclosed that it holds short positions in Adani companies through U.S.-traded bonds and non-Indian-traded derivative instruments.
After the share sale was pulled, yields of dollar-denominated bonds issued by Adani companies rose on Wednesday. Bond yields move inversely to prices. Yields of Adani Green Energy's $500 million bonds due in 2024 rose to 15.45% on Wednesday from 12.1%.
The fundraising was critical for Adani, not just because it would have helped cut his group's debt, but also because it was being seen by some as a gauge of confidence as he faced the biggest business and reputational challenge of his career.
Adani Group was working with its bankers to refund the proceeds received by in the secondary share sale of Adani Enterprises. Anchor investors who had supported the issue included Maybank Securities and Abu Dhabi Investment Authority.
The company aims to protect the interests of its investing community by returning the proceeds, it said.
Adani Group had on Tuesday mustered enough support from investors for the share sale to proceed, in what some saw as a stamp of investor confidence amid the storm.
Wednesday's stock losses saw Adani slip to 15th on the Forbes rich list with an estimated net worth of $75.1 billion, below rival Mukesh Ambani, the chairman of Reliance Industries, who ranks ninth with a net worth of $83.7 billion.
The share sale had succeeded on Tuesday even when the Adani Enterprises stock price in Mumbai markets traded below the offer price of the share sale.
While concerns had mounted the share sale may not succeed, and bankers even considered price cuts and timeline changes, Adani issued statements saying it was confident about its prospects and that all of its investors were standing by its side.
"I do not know how the markets will behave in short term. But this is a measure to enhance (Adani's) reputation since the investors were staring at a 30% loss even before the shares were allotted," said Rajesh Baheti, chief executive, Crossseas Capital Services, an algo trading firm.
(Reporting by Aditya Kalra and Jahnavi Nidumolu in Bengaluru; Editing by Anil D'Silva, Kirsten Donovan and Alexander Smith)