Last week, LIC released its numbers on exposure to Adani stocks and debt. This is an analysis of those numbers and what normally follows.

BY NOW every Indian is aware of the Adani group’s stock crash saga.

While very few professional financial organizations invested their money in Adani’s businesses, shockingly PSUs like LIC and SBI did to the tune of 80,000 crores.

These are companies where poor & common people of this country park or save their money. They do so for their future or children or retirement or for a rainy day. That is why it is expected from PSU banks and insurance organizations to make only secure, low risk-low return bets, so that they don’t end up losing public’s money.

But in Adani’s case they clearly made an exception which means that when LIC loses money, it loses public money.

That is why there was a lot of fear amongst common people, which was also expressed in the parliament by Congress and other opposition parties, to openly talk about the kind of losses incurred or risk to the public money.

So LIC had to respond and eventually they did. Last week, LIC released its numbers on exposure to Adani stocks and debt. This is an analysis of those numbers and what normally follows.

The scary thing that should keep Adani up at night is that none of the big players, who own large tranches of his stock or debt have sold or dumped his shares yet. These include LIC and Indian PSU banks, who have not sold the shares yet or asked for margin call money on their loans, even after the Adani stocks have crashed more than 50%.

But here lies the monster in the detail. When you take a closer look at the scale of exposure, LIC’s press release reveals scary numbers. LIC bought shares or has given loans to Adani worth 36,000 crores, of which 30,000 crores was used to buy stocks in various companies of Adani group over a period of 5-6 years.

It has been widely known for a while that there is something fishy about how Adani’s stock prices have grown vis-à-vis their revenue and profit. There simply is no reason why Adani’s stock should be so overvalued. So, the first thing to know is that LIC has been buying these hugely inflated stocks at a very high premium for over 5 years now.

The real question is, when none of the private money managers, who are the most aggressive of investors with big risk appetite, did not find the Adani growth attractive and saw something fishy, how did LIC find the same Adani’s businesses’ over inflated stock prices an attractive bet?

LIC has good money managers, and they are expert evaluators just as in any private bank or private money manager. Then what happened to LIC’s professional integrity, and what prompted them to buy Adani shares when no one else wanted to?

The only possible answer is the pressure from above, the powerful one asking them to invest in the Adani group.

Against all their wisdom and knowledge, owing to crony capitalism promoted under the corrupt regime of the Dear Leader, LIC participated in artificial rallies for 5 years, becoming a party to Adani stock price manipulation scam.

To me it seems that they did this knowingly. Simply speaking, this is gambling with the intention of losing because you want the gambling house to win.

Let’s get back to the numbers and simplify them. Of the 36,000 crores of LIC exposed to Adani businesses, 30,000 crores were invested in buying Adani stocks.

This 30,000-crore investment grew and was valued at 56,000 crores on the day the Hindenburg report hit the market, because Adani’s stock prices kept growing artificially till the report exposed the scam.

But once exposed, the market woke up and Adani’s stocks have lost 11 lakh crores so far, nearly half of his valuation.

This means that LIC’s stocks worth 56,000 crores in Adani’s companies are also down 50%, at least. Which means that LIC’s 56,000 crores in Adani are worth only 28,000 crores.

Shocking part is they didn’t sell, even when they could see their 56,000 crores reduced to 28,000 crores? This begs the question, why didn’t they sell? Who asked them not to sell the shares of Adani?

Remember, they invested 30,000 crores over 5-6 years which is now worth only 28,000 crores, which means they made a loss of 2000 crores.

Instead of gambling on businesses like Adani, If LIC has invested the same 30,000 crores in 5% assured return, low risk, compounded yield investment vehicle, as it is supposed to do, those 30,000 crores would have grown to 40,000 crores today, making a profit of 10,000 crores.

So instead of making 10,000 crore profit, because it invested in Adani, LIC now sits on a loss of 2000 crores. In summary, it lost 2000 crores and lost the opportunity to earn 10,000 crores, a total of 12,000 crores.

Now, for the nightmare part. If the Adani group stocks continue falling, which is very likely, LIC’s 28,000 crores still invested in the Adani group, can go down to 20,000 crores in a span of a week.

If you have been reading the news from Citigroup, Barclays, MSCI and other global publications, we know that there is a very high probability of further decline in valuation of Adani stocks. This is a risk which LIC will not want to take due to the intense public scrutiny now.

This brings us back to Adani’s nightmare, where big investors like LIC have no choice but to sell their shares due to fear of bigger losses. So, let me explain how Adani’s nightmare can become LIC’s and thus everyone’s nightmare too.

The nightmare will unfold when LIC put their Adani stocks for sale, given the current investor sentiment nobody will buy those stocks.

Also Read: Hindenburg’s Adani Report Made Simple: Fallout of Exposé

Also, to find someone who wants to buy Adani’s shares worth 30,000 crores these days is an impossible task. Stock purchases to the tune of 30,000 crores can only be made by a global financial giant as big as a LIC.

Right now, there is none now who wants to spend that kind of money on Adani. Not especially when they can probably buy Adani stocks for a fraction of the current prices if they wait for some more time.

In the absence of big buyers, LIC will be left no other option to dump the stock at distress sale type deep discounts. This will unleash another fresh crash or free fall of Adani stocks. Furthermore, Spooked by LIC dumping Adani stocks, other big players too, will do the same.

If this happens, which seems to be the case, as we saw in the case of Norway’s sovereign fund, which sold their whole stake worth 200 million dollars, then there will be a total and complete rout of Adani stocks with no one in sight to buy them. The stock will be reduced to wastepaper.

A hint of this fear in the larger lenders or investors can be seen in the recent pre-payment of a USD 1.1 billion loan by Adani.

Also Read: We Are Awesome!

They did not do it to show their good financial health, they did so because those lenders had asked for USD 540 million of margin call money. If Adani had failed or refused to do so, the larger players would have panicked and triggered a total sell off.

What LIC is doing is patently evil. LIC is not an investment firm, like private money managers, who have the permission from their investors to bet on high risk, high yield investment vehicles.

LIC is where people park their money for safety, which means security of that money, public money is of absolute importance. LIC by design should not even think about investing in high risk, high return stock, much less in a sham like Adani.

LIC has not done so in the past but for Adani they have made an exception. LIC would NEVER invest 30,000 crores in a company they themselves know to be bad. They would do so only under duress from the Government.

Also Read: Adani Bubble: A Researched Prick

So, the Management at LIC, instead of growing a spine and talking back to Government about saving the public money, have gone to a casino, and gambled away the savings to the tune of 30,000 crores, at least.

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