Citigroup, Credit Suisse wealth units halt margin loans on Adani securities

The Swiss lender’s private banking arm previously offered a lending value of about 75 per cent for Adani Ports and Special Economic Zone notes. PHOTO: BLOOMBERG

HONG KONG – Credit Suisse and Citigroup wealth units have stopped accepting securities of billionaire 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 bonds sold by Adani Ports and Special Economic Zone, Adani Green Energy and Adani Electricity Mumbai, according to people familiar with the matter. It had previously offered a lending value of about 75 per cent 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.

Citigroup’s wealth unit also stopped extending margin loans to its clients against Adani securities, a source with direct knowledge of the matter said. It cut the loan-to-value (LTV) ratio for credit against Adani securities to zero on Thursday, said the source.

Other banks continue to lend against Adani debt.

Bank of Singapore – OCBC Bank’s private banking unit – is continuing to offer margin loans for up to 70 per cent 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 Mr Alexandre Lotfi, Bank of Singapore’s chief risk officer.

At least two European private banks have kept the level unchanged as of now, with one of those offering lending of between 75 per cent and 80 per cent 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.

The corporate empire of Mr Adani, Asia’s richest man, was thrown into turmoil after Hindenburg 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 have since recouped some losses.

Adani Green Energy’s dollar bonds maturing in 2024 were trading at 74.3 cents on the dollar, down 1.2 cents on the previous day, while the Adani Ports and Special Economic Zone bonds maturing in 2027 fell 2.6 cents to 78 cents on the dollar on Wednesday as at 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

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$92 billion (S$120 billion).

Credit Suisse’s move “is souring sentiment again on Adani Group companies”, said Mr Deven Choksey, managing director at KRChoksey Holdings.

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 lend 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 that it faces losses of up to 1.5 billion Swiss francs (S$2.2 billion) for the final three months of 2022, partly due to historic outflows of client funds.

The Adani Group detailed its wide domestic and international banking relationships in its rebuttal of the Hindenburg 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. BLOOMBERG, REUTERS

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