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Credit Suisse stops accepting bonds of Adani Group firms

Credit Suisse upgraded its rating on Adani Ports and Special Economic Zone from “neutral” to “outperform” due to attractive valuations, according to a statement on Tuesday. However, the next day the bank reportedly ceased accepting bonds of Adani Group firms as collateral for margin loans.

“Outperform” rating revised

On January 31, Credit Suisse upgraded Adani Ports & SEZ to an “Outperform” rating with a target price of Rs 825. However, its private banking division has assigned no lending value to bonds issued by the Adani Group.

Zero lending value

On February 1, while Credit Suisse’s equity research division upgraded its rating on Adani Ports & SEZ, the Swiss bank’s private banking arm declined to lend against bonds issued by Adani Group companies. Other banks continue to offer lending for Adani’s debt, with at least two European private banks maintaining their lending levels. However, if a bank reduces its lending value to zero, clients must provide additional collateral to secure their securities.

Group facing huge losses

The Adani Group has recently been at the center of controversy after an investigation raised questions about the conglomerate’s financial practices. The bonds of the group experienced significant losses, but have since partially recovered after a successful $2.5 billion share sale.

Hindenburg Research

Following the report from Hindenburg Research, which claimed the Adani group used a network of firms in tax havens to artificially boost revenue and stock prices, the group’s bonds dipped to record lows. However, Adani Enterprises Ltd.’s successful completion of a $2.5 billion share sale with backing from existing shareholders and institutional investors led to some recovery in the bonds’ value.

Debt against security

Wealthy investors in Asia frequently use leverage when making investments by taking on a debt against securities. Banks consider various factors, including a security’s price volatility and credit rating, when determining the amount they will lend. Private banks reduced margin funding on bonds of Chinese property developers in late 2022 as the industry faced difficulties. Similarly, after the invasion of Ukraine by Russia and subsequent sanctions, some banks decreased the amount they would lend against Russian debt.

Credit Suisse is undergoing a restructuring of its investment banking division following various scandals and changes. The bank has warned of potential losses of up to 1.5 billion Swiss francs in Q4 of 2022, partly due to past outflows of client funds.

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