Citigroup wealth unit halts margin loans on Adani securities

By Denise Wee and Joyce Koh,

Citigroup Inc’s wealth arm has stopped accepting securities of Gautam Adani’s group of firms as collateral for margin loans as banks ramp up scrutiny of the Indian tycoon’s finances following allegations of fraud by short-seller Hindenburg Research.

The US lender’s move to restrict lending comes after a similar change at Credit Suisse Group AG, as Adani’s beleaguered empire becomes further engulfed in crisis.

“In recent days, we have seen a dramatic price drop of Adani-issued securities,” Citigroup said in an internal memo seen by Bloomberg News. “Stock and bond prices have plummeted following the negative news around the group’s financial health.”

Also Read | Adani Group's market losses hit Rs 8L crore as stocks sink after botched share sale

The bank said in the memo it has decided to remove lending value “to all Adani-issued securities with immediate effect.” Based on its estimates, the impact of this decision to its margin lending portfolio is limited, it said.

A spokesman for Citigroup declined to comment.

Bonds of the Indian billionaire’s flagship firm plunged to distressed levels in US trading, and the company abruptly pulled a record domestic stock offering after shares in the Adani group suffered a Rs 7.5 lakh crore ($92 billion crash). The stock rout intensified Thursday with Adani Enterprises Ltd. falling as much as 10 per cent in early Mumbai trading, while the other nine stocks in the group also declined.

Also Read | Adani calls off FPO, to return money to investors

Meantime, billionaire Adani said his conglomerate would examine its capital market plans after his flagship firm yanked its Rs 20,000 crore ($2.5 billion) domestic stock offering. The focus is on what the government of Prime Minister Narendra Modi, widely perceived to have close ties to Adani, might do to support the group given its importance to the nation’s economy.

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.

At Credit Suisse, 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.

Decisions at private banking divisions are between that firm and its clients and do not impact other banking relationships that the company may have with the Adani group of companies.

( 1 USD= 82.17 INR)