Credit Suisse Assigns Zero Lending Value To Adani Bonds – What Does This Imply?

Earlier, the Swiss-based Credit Suisse was offering a lending value of 75 per cent on the Adani bonds

Updated on: 1 February 2023 4:32 pm

Adani Group is under the scanner after Hindenburg accused it of fraud and market manipulation

Global investment firm Credit Suisse assigned ‘zero lending value’ to bonds issued by Adani Ports and SEZ, Adani Green Energy and Adani Electricity Mumbai on Wednesday, Bloomberg reported. Following this development, stocks belonging to Adani Group companies closed in red, with its flagship firm Adani Enterprises closing 28 per cent lower on the NSE.

The Adani Group companies were already having a disastrous few days at the markets after short-seller Hindenburg Research published a scathing report on Adani’s alleged market malpractices last week. The ports-to-power conglomerate reportedly lost a third of its market capitalisation in the five trading sessions since the short-seller's report came out. Now, it seems that Credit Suisse’s downgrading of the Adani bonds will add to the group’s woes.

Earlier, the Swiss-based Credit Suisse was offering a lending value of 75 per cent on the Adani bonds, as per Bloomberg. This means that clients could hold bonds issued by the Adani firms as collateral and borrow up to 75 per cent of the bonds’ value from Credit Suisse. With today’s revelation, it is implied that clients can no longer offer Adani bonds as collateral for loans from the Swiss lender.

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Bonds issued by Adani firms were already falling in value for close to a week, before climbing today, as Hindenburg’s criticism damaged investors’ faith in bond and equity products of the Adani Group. Notably, Hindenburg holds short position on Adani bonds and its US-traded derivatives, implying that the present fall in its valuation will boost the short-seller's profits.

The Bloomberg report also added two European private banks are still accepting Adani bonds as collateral with one of them lending on at 75 to 80 per cent of the bonds’ value. Potential downgrades from rating agencies will have adverse effect on this.

The clients who held Adani bonds as collateral with Credit Suisse will have to find new collateral at this point, or make cash top ups. Failing this, the lender can liquidate their securities.