By Jayshree P Upadhyay and Chris Thomas
BENGALURU (Reuters) - India's market regulator is examining a rout in the shares of billionaire Gautam Adani's companies, a source with direct knowledge told Reuters, as the losses triggered by a scathing U.S. short-seller report ballooned on Wednesday to $86 billion.
The Securities and Exchange Board of India (SEBI) is also looking into several of the allegations made by Hindenburg Research, and into any potential irregularities in a key share sale by the flagship Adani Enterprises on Tuesday, the source said, speaking on condition of anonymity.
Spokespeople for SEBI and Adani Group did not immediately respond to requests for comment.
Among several allegations, Hindenburg accused Adani Group last week of using offshore tax havens and stock manipulation. It also raised concerns about high debt and the valuations of the seven listed Adani companies.
The group has denied the allegations, saying the short-seller's narrative of stock manipulation has "no basis" and stems from an ignorance of Indian law. It has always made the necessary regulatory disclosures, it added.
On Tuesday, Adani Group mustered support from investors for a $2.5 billion share sale for Adani Enterprises, in what some saw as a stamp of investor confidence at a time of crisis.
But the meltdown in Adani group stocks and bonds resumed on Wednesday, with shares in Adani Enterprises plunging 28% and Adani Ports and Special Economic Zone dropping 19%, the worst day on record for both.
The losses mark a dramatic setback for Gautam Adani, the school-dropout-turned-billionaire whose fortunes rose rapidly in recent years in line with stock values of his businesses that include ports, airports, mining and cement.
Now, the tycoon - who slipped out of top 10 on the Forbes rich list on Wednesday - is fighting to stabilise his companies and defend his reputation.
Underscoring the nervousness in some quarters, Bloomberg reported that Credit Suisse had stopped accepting bonds of Adani group companies as collateral for margin loans to its private banking clients. Credit Suisse had no immediate comment.
Deven Choksey, managing director of KRChoksey Shares and Securities, said this was a big factor in Wednesday's share slides.
After losing $86 billion in recent days - equivalent to 16% of India's annual budget spend of $550 billion announced on Wednesday - the seven listed Adani Group entities now have a combined market capitalisation of about $131 billion.
GRAPHIC: Gautam Adani slips to world's eighth richest person- https://www.reuters.com/graphics/ADANI-INDIA/HINDENBURG-NETWORTH/akpeqadbbpr/chart.png
OUTFLOWS
Indian credit rating agency ICRA Ltd, a unit of Moody's (NYSE:MCO) Investors Service, said on Wednesday it was monitoring the impact of the developments on its rated portfolio in Adani Group.
It added that while the group's large debt-funded capital spending plan was a "key challenge", some of it was discretionary in nature and could be deferred, depending on the liquidity position.
An Australian regulator said on Wednesday it would also review Hindenburg's allegations to see if further enquiries were warranted.
Wednesday's stock losses saw Adani slip to 15th on Forbes rich list with an estimated net worth of $75.1 billion, below rival Mukesh Ambani, the chairman of Reliance Industries Ltd who ranks ninth with a net worth of $83.7 billion.
Before Hindenburg's report, Adani had ranked third.
Asked whether he was concerned about wider losses on India's equity markets because of the plunge in Adani Group shares, Economic Affairs Secretary Ajay Seth said the government "does not comment on issues related to a particular company".
India's benchmark Nifty index has fallen 2.7% since the Hindenburg report. Data also shows that foreign investors sold a net $1.5 billion worth of Indian equities after the report - the biggest outflow over four consecutive days since Sept. 30.
Shares in Adani Power and Adani Wilmar fell 5% each on Wednesday, and Adani Total Gas slumped 10%, with all three falling by their daily price limits. Adani Transmission was down 3% and Adani Green Energy down 5.6%.
Adani Total Gas, a joint venture with France's Total, has been the biggest casualty of the short seller report, losing about $27 billion.
Shares in cement firms ACC and Ambuja Cements, which Adani Group bought from Switzerland's Holcim (SIX:HOLN) for $10.5 billion last year, fell 6.2% and 16.7%, respectively.
GRAPHIC: Adani stock rout deepens Adani stock rout deepens- https://www.reuters.com/graphics/EROSION-JAN31/JAN31-EROSION/dwvkderebpm/chart.png
Dollar bonds issued by Adani entities also resumed their slide on Wednesday. The U.S. dollar-denominated bonds of Adani Ports maturing in February 2031 led the losses, falling 3.59 cents to 67.58 cents.
Hindenburg said in its report it had shorted U.S.-bonds and non-India traded derivatives of the Adani Group.