Credit Suisse Group AG has stopped accepting bonds of Gautam Adani’s group of companies as collateral for margin loans to its private banking clients, a sign that scrutiny of the Indian tycoon’s finances is growing after allegations of fraud by short seller Hindenburg Research.
The Swiss lender’s private banking arm has assigned a zero lending value for notes sold by Adani Ports and Special Economic Zone, Adani Green Energy and Adani Electricity Mumbai Ltd., according to people familiar with the matter, who asked not to be identified discussing private information. It had previously offered a lending value of about 75% for the Adani Ports notes, one of the people said.
When a private bank cuts lending value to zero, clients typically have to top up with cash or another form of collateral and if they fail to do so, their securities can be liquidated.
A Credit Suisse spokeswoman didn’t immediately comment. A representative at Adani Group said it has no relationship with Credit Suisse’s private bank.
Other banks continue to lend against Adani debt. At least two European private banks kept the level unchanged as of now, with one of those offering lending of between 75% to 80% for Adani Ports and Special Economic Zone dollar bonds, according to the people. A potential trigger for lowering could be any rating downgrade, one of the people said. Bank of Singapore — the private banking unit of Oversea-Chinese Banking Corp., Singapore’s second-largest lender — is continuing to offer margin loans for up to 70% of the value of Adani dollar bonds, some of the people said.
“In determining the LTV that is given to the client, we take into consideration various parameters such as the rating of the bond, duration and concentration as well as the prevailing market conditions (price, liquidity, volatility),” said Alexandre Lotfi, Bank of Singapore’s chief risk officer.
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The corporate empire of Adani, Asia’s richest man, was thrown into turmoil after Hindenburg Research alleged in a report that the group used a web of firms in tax havens to overstate revenue and stock prices. Bonds of the group plumbed record lows after the allegations, though they’ve since recouped some losses after Adani Enterprises Ltd. completed a US$2.5 billion ($3.28 billion) share sale with support from existing shareholders and institutional investors.
Adani Green Energy’s dollar bonds maturing in 2024 were trading at 74.3 US cents on the dollar, down 1.2 US cents on the previous day, while the Adani Ports & Special Economic Zone bonds maturing in 2027 fell 2.6 cents to 78 cents on the dollar on Wednesday as of 6.02pm in Hong Kong. The former’s bonds are rated Ba3 by Moody’s, while the latter’s bonds are rated Baa3.
Further Losses
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Declines in Adani’s shares resumed on Wednesday, with Adani Enterprises among those plunging. The combined market value slump at the group’s listed units now exceeds US$90 billion since the Hindenburg report was released.
Credit Suisse’s move “is souring sentiment again on Adani group companies,” said Deven Choksey, managing director at KR Choksey Holdings Ltd.
Wealthy clients in Asia often take on leverage against securities to make investments. Banks typically consider the volatility of a security’s price and its credit rating among factors when determining lending values. Private banks late last year curbed margin funding on bonds of China property developers as that sector ran into turmoil. After Russia invaded Ukraine and sanctions were imposed, some banks cut the amount they would loan their private bank customers against Russian debt.
Credit Suisse, which is undergoing a strategic revamp of its investment bank following a slew of scandals and overhauls, has warned it faces losses of up to 1.5 billion Swiss francs (US$1.6 billion) for the final three months of 2022, partly due to historic outflows of client funds.
Adani detailed its wide domestic and international banking relationships in its rebuttal of the Hindenburg Research allegations, where Credit Suisse was listed as a backer. Decisions at the private banking arm are between the firm and its clients and do not impact Credit Suisse’s other banking relationships with the Adani group of companies.
