Investors are keen to seek clarity from companies during earnings releases on their exposure to Adani Group, as the Indian billionaire Gautam Adani’s indebted conglomerate is said to have halved its revenue growth target and plan to hold off fresh capital expenditure amid a selloff that wiped out more than half of the market value of its companies.
(Bloomberg) — Investors are keen to seek clarity from companies during earnings releases on their exposure to Adani Group, as the Indian billionaire Gautam Adani’s indebted conglomerate is said to have halved its revenue growth target and plan to hold off fresh capital expenditure amid a selloff that wiped out more than half of the market value of its companies.
Banks will need to increase reserves set aside for their credit exposure to Adani-related entities due to the conglomerate’s spread widening, according to Bloomberg Intelligence analysts Pri De Silva and Adrian Sim. Lenders with market-making businesses could benefit from increased volatility and trading volumes, which might offset the higher reserving needs, they added.
Standard Chartered is among Asian banks reporting this week and may offer some clues on Adani exposure in its announcement. Singapore’s largest lender DBS Group reported a surge in fourth-quarter profit that beat expectations on Monday morning and announced a special dividend of 50 Singapore cents a share, citing its strong capital base.
Earnings season is shifting to other Asia markets and investors start weighing factors including China’s reopening. Fortescue Metals Group, one of the world’s major iron ore miner, will report results on Wednesday amid growing skepticism that anticipated rebound in appetite after the Lunar New Year break isn’t materializing. Lenovo Group will announce results on Friday with analysts deeming a significant decline in commercial PC sales highlights the challenges in reviving demand after reopening.
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Highlights to look for this week:
Monday: No other major earnings expected.
Tuesday: Adani Enterprises (ADE IN) is likely to report third-quarter earnings after market close. The spotlight, however, will be on the Adani Group flagship’s plans to raise funds after a botched share sale, insights on repayment of loans and any cut in capital expenditure. The company had to abruptly pull a record 200 billion rupees ($2.4 billion) share sale, following a meltdown in its stock and bond prices triggered by short seller Hindenburg Research’s allegations that the conglomerate engaged in stock manipulation and accounting fraud over decades. The allegations have raised a storm in the country’s parliament and forced policy makers and regulators to step in to calm frayed nerves. Shares recovered some of the losses as the founders rebutted the claims, got pledged shares in some firms released and announced loans repayment to allay the concerns. But the recovery didn’t last long as a review by MSCI Inc. spurred concern about passive outflows. The company, like most group firms, isn’t widely tracked by analysts.
- Toshiba (6502 JP) reports third-quarter results after market close. After months in limbo, Toshiba said last Thursday that it received a buyout offer from a consortium led by Japan Industrial Partners. The sale also cleared a major hurdle as banks reportedly issued a commitment letter for a $10.7 billion loan to help fund the deal. On the earnings front, operating profit may fall from a year earlier as the company is unlikely to turn around the loss at its hard disk drive unit amid continuing weak demand, even as profit at its energy systems and solutions unit could recover, according to Bloomberg Intelligence.
Wednesday: Fortescue (FMG AU) is scheduled to report its half-year earnings before market open. Despite record iron ore shipments for the period, the Australian mining giant’s revenue and profit are expected to be lower than the year earlier. As iron ore prices remain sensitive to growth outlook of China, which accounts for 88% of Fortescue’s total sales, investors will keep looking for comments on how the company will benefit from the China reopening story. Among companies on Australia’s benchmark index, miners are tipped for the largest decline in dividend payouts on weaker prices in some commodities and expectations for softer earnings. Rio Tinto’s decision to slash its dividend in July raises the chances that peers like Fortescue could also go into “cash-saving mode,” according to Hebe Chen, an analyst at IG Markets. Its dividend payout may take a 25%-50% cut based on the previous payout ratio and the estimated EPS for FY23, she said in a report.
Thursday: Standard Chartered (STAN LN) will report quarterly results after morning trading in Hong Kong. Fourth-quarter underlying pretax profit may increase to $780 million from $139 million a year earlier, according to estimates compiled by Bloomberg. It would be worth watching out for comments on whether the rout of Adani Group would change the Asia-focused bank’s strategic priorities since India is StanChart’s third-largest market in the region by revenue. Abu Dhabi’s largest bank is working under the radar on a possible bid for StanChart once a cooling off period required by UK takeover rules elapses, Bloomberg reported last Thursday, citing people familiar with the matter. CEO Bill Winters has said last month that StanChart had not held talks with over a possible takeover and any updated insights would be of interest. On top of that, investors are also curious about how the CEO is navigating growth after China abandoned its Zero-Covid policy would be interesting as he expected a slowdown in Europe and the US.
Friday: Lenovo Group (992 HK) is set to report third-quarter results around noon. Focus will be on whether the firm could further rely on cost reductions and new businesses to weather a dwindling computing demand globally. The company, which has the largest share of the corporate PC market, saw its sales drop for the first time in more than two years in 2Q. Its revenue could drop by “mid-teens percentages” in fiscal 3Q, mainly due to weakening PC demand, Bloomberg Intelligence analysts wrote in a note. The company may face pressure on margins as softer corporate demand may lead to a less favorable sales mix, and sales contribution from lucrative services solutions remains dwarfed by its PC business, according to BI.
–With assistance from Georgina Mckay.
(Updates throughout with the most recent development on Adani and DBS results.)
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