Suppose Ravi needs a loan of 1 lakh, but the Dummy Bank of India tells Ravi that they will give him the loan,
but he will have to give security of 75,000 in return.
So Ravi gets 15 grams of gold deposited with the dummy Bank of India, whose value today is Rs. 75,000.
That is, today the price of 10 grams of gold is Rs. 50,000.
Now suppose after 1 month due to some reasons the price of gold is crashing badly, and the price of 10 grams of gold falls to 40,000.
So the 15 grams of gold that Ravi had deposited with the bank will be worth 60,000 instead of 75,000, right?
Now Dummy Bank of India starts worrying if Ravi's default on his loan payment.
So dummy Bank of India’s manager Aman tells his team that they are ready to take a maximum risk of 25,000, not more than that.
Aman tells his team to go to Ravi now and give him notice that if Ravi has to continue with his loan,
he will have to deposit an additional Rs 15,000 (75,000 - 60,000) in the bank.
And if Ravi does not do so, the dummy Bank of India will sell the gold deposited by him.
Now Ravi has only 2 options, either he fulfills the bank's requirement by giving 15,000 cash or loses the gold that he deposited.
Mr. Gautam Adani's Adani Group, once the world's second richest man, was recently caught in a similar situation
when he received a $500 million "margin call" from banks.
What is the last margin call? What is this whole situation? And how did Adani Group handle it?
What was the impact on Adani's share prices? Are the troubles over for the Adani Group?
Let's understand this in today's video.
A few days back you must have heard that the Adani Group has prepaid a loan of $1.1 billion by pledging shares.
And this news was also taken positively by the market after which there was a good recovery in Adani shares.
Everything was perfect, but then comes a report from the Financial Times.
In that, they wrote that Adani had received a $500 million "margin call" from banks for its $1.1 billion loan.
Now you will ask what is Margin Call. So remember the example of Ravi and the dummy Bank of India.
As soon as the value of the collateral deposited by Ravi exceeded the minimum safe margin of the bank, they issued a notice to Ravi.
And this notice or warning is called a "margin call".
Adani joined a group of banks like Barclays, Citigroup, Deutsche Bank, JP Morgan, and SMBC Group of Japan, for a loan of $1.1 billion.
And this loan was taken by Adani by pledging the shares of his group companies.
Since the Adani-Hindenburg affair started, shares of Adani Group companies have fallen by more than 50%.
So as soon as this group of banks realized that the value of shares pledged by Adani is less than their safe margin,
they told Adani Group to give us $500 million in cash, otherwise, we will have to sell our shares in the market.
Now, if they sell shares of Adani companies in the lenders' market, then their stocks, which are already under pressure, crash badly.
That's why the Adani Group decided that they would not only pay $500 million in cash but also repay the entire $1.1 billion loan.
Adani Group said that prepaying this loan shows that it is committed to reducing its leverage.
Although he did not specify which entity had taken the $1.1 billion loan.
But they said that his pledged shares in Adani Ports, Adani Green Energy, and Adani Transmission would be released by this debt repayment.
Adani has not yet disclosed from where the funds were sourced to repay this loan.
After this news came, Adani Group's stocks first improved on Thursday and lost its market cap of about 59,500 crores.
And the troubles are not over yet for the Adani Group.
Another factor behind Thursday's correction is an announcement made by financial index provider Morgan Stanley Capital International ie MSCI.
Now, what is MSCI?
And what was the unexpected announcement made in the market in which the sentiment regarding Adani stocks has worsened?
Let's understand. If you have found this video interesting and informative so far, then like the video and also subscribe to the channel.
Done? So let's go ahead now.
So, MSCI is the leading provider of indices across the world for securities like equities, real estate, and fixed income.
This means investors and big fund managers from all over the world allocate their capital by referring to the products made by MSCI.
MSCI makes different indexes, and the stocks that are in their index, institutions, and funds from all over the world put money in them.
As of now, Adani Group has 8 stocks in different MSCI indices
Adani Enterprises, Adani Ports, Adani Total Gas, Adani Green Energy, Adani Transmission, Adani Power, Ambuja Cements, and ACC.
Now it is obvious that MSCI would be checking various factors before adding any stock to its index, right?
And one of those factors is "free float share. "Free float shares mean shares that are publicly available to buy or sell.
That is, shares other than those held by the promoter group are generally called free-float shares.
Generally, the higher the free float, the better it is considered for the liquidity of a stock.
Remember, Hindenburg in his report also accused the Adani Group of artificially controlling its public float through foreign shell entities.
MSCI took this allegation seriously and told them that they are reviewing the "actual" free float position of Adani Group Securities.
He believes that it would not be correct to designate the stakes of some investors in Adani stocks as free-float.
During this, there was a fear in the minds of the people that some Adani stocks might be removed from the MSCI index.
That's why market participants did not take this news negatively.
On 9 February 2023, MSCI announced the pro forma results of its February index review,
in which it said that none of the Adani Group stocks would be removed from MSCI's index.
But the weightage of 4 Adani stocks will be reduced in their index.
These 4 companies are their flagship Adani Enterprises, Adani Total Gas, Adani Transmission, and ACC Limited.
These will come into effect from 1 March 2023.
Due to this, it is expected that there could be a combined outflow of $ 500 million from these four stocks.
As soon as this news came out, heavy selling was again seen in Adani stocks on Friday i.e. 10th February.
In another negative news, France's Total Group, which has an exposure of $3.1 billion in Adani Group,
has put on hold its hydrogen fuel business partnership with the Adani Group.
The value of this hydrogen project is $ 50 billion, in which Total Energy is also going to invest.
Amidst all these, there are reports that Adani Group is about to prepay another loan after gaining the confidence of the market and investors.
A consortium of banks such as Barclays Plc, Standard Chartered Plc, and Deutsche Bank
lent $4.5 billion last year to buy properties owned by Holcim Ltd in Ambuja and ACC.
A portion of that loan is due on March 9, 2023. But if reports are to be believed, Adani Group is about to prepay a $500 million portion.
Another update is that Adani Group has hired Wachtel, one of the costliest defense law firms in US, to fight the allegations by Hindenburg.
Adani Group had also said some time ago that they are planning to take legal action against Hindenburg.
Wachtel was also hired by Twitter in 2022 when he wanted to listen to Elon Musk and force Musk to complete the Twitter acquisition.
So friends, Gautam Adani, once India's richest man, is in trouble today because of a report by a short-seller.
At one point, his market value was reduced by about $ 117 billion due to selling his group companies.
Global banks are tightening their scrutiny on the Adani Group.
It will not be easy for Adani Group to repay so many challenges quickly, to repay some loans quickly.
Are you buying any Adani stock in this dip? Do tell me in the comments!
If you like this video, then like it, share it with your friends, and also tell in the comment which Adani stocks you own.
And how many losses have you incurred in the last 15 days?
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