Adani-Hindenburg row: How withdrawal of FPO may impact billionaire Gautam Adani's group
7 min read . Updated: 02 Feb 2023, 08:29 PM IST
Premium- Due to the carnage in Adani stocks, Gautam Adani who was among the top five billionaires in the world --- witnessed a massive downfall in his wealth. Mukesh Ambani has surpassed Adani to become the richest man in India.
Majority of Adani stocks continue to be in deep reds without any rest, losing billions of dollars in valuation. Thursday emerged as another day for bears to topple Adani stocks off the table with Adani Enterprises taking a massive blow, especially, after the call-off of the ₹20,000 crore follow-on-public offer (FPO) despite being fully subscribed. This raises concerns over funding that the group needs for its ambitious expansionary roadmap and debt servicing.
After Hindenburg Research's shocking report, Adani has been the talk of the town with many questions arising over the business performance of the group and investors' faith has been dangling.
Due to the carnage in Adani stocks, Gautam Adani who was among the top five billionaires in the world --- witnessed a massive downfall in his wealth. Mukesh Ambani has surpassed Adani to become the richest man in India.
As per Bloomberg Billionaire Index, Adani's net worth as of February 2nd, 2023, stood at $72.1 billion at 13th rank. His wealth has been scrapped by the latest $12.5 billion, while year-to-date, it has dipped by a massive $48.5 billion. Reliance Industries chief Mukesh Ambani surpassed Adani to become the 12th richest man in the world, and the richest at home with a net worth of $81 billion.
Doomsdays of Adani stocks:
Adani Enterprises: The Group's flagship company began the current week on a positive note. The stock was gaining and stayed on the upward tick when the FPO fully subscribed on January 31. But the start of February turned into mayhem, and the withdrawal of FPO only further dampened confidence in the stock.
After touching a fresh 52-week low of ₹1,513.90 apiece on Thursday, Adani Enterprises stock nosedived by 26.50% or ₹564 to end at ₹1,564.70 apiece. The stock in a free fall has plummeted by over 47% in the first two trading days of February. Since January 24th, the stock has shed over 54.5% on BSE.
Adani Ports: The share price closed at ₹462 apiece down by 6.13% on BSE. On Thursday, in the trading session, the stock did touch a new 52-week low of ₹423 apiece. In two trading sessions, the stock has plunged by nearly 25%. Since January 24th, this Adani stock has dived by over 39% on BSE.
Adani Power: This stock has touched a 5% lower circuit for the sixth consecutive day. On Thursday, the stock ended at ₹202.15 apiece on BSE. Since January 24th, the stock dropped by over 26.5% as of now.
Adani Transmission: This stock closed at a 10% lower circuit at ₹1,557.25 apiece on BSE. This would also be its fresh 52-week low. Since January 24th, the stock has shed nearly 43.5%.
Adani Green Energy: The stock ended at ₹1,038.05 apiece which is their fresh 52-week low and 10% lower circuit on BSE on Thursday. In two trading sessions, Adani Green's shares dropped by over 15%. Since January 24th, the stock plunged by nearly 47.5% on BSE.
Adani Total Gas: This stock has been in red for eight days straight. On Thursday, the stock hit its third consecutive lower circuit of 10% to end at ₹1,711.50 apiece. Since January 24th, the stock has plunged by nearly 56% on BSE.
Adani Wilmar: The group's FMCG player has touched a 5% lower circuit for the sixth consecutive day. On Thursday, the stock closed at ₹421.45 apiece. The stock was last in green on January 24th, but since then has tumbled by 26.5% on Dalal Street.
On Thursday, Adani Group's market swelled to over 100 billion dollars post-withdrawal of FPO.
Withdrawal of FPO and its aftershocks:
Despite the group's FPO receiving a full subscription on the last day, Adani decided to not go ahead with the offer. The price band of the FPO was ₹3,112 per FPO equity share and ₹3,276 per FPO equity share -- which was at a premium compared to the market price of Adani Enterprises.
Late Wednesday, Gautam Adani, Chairman, of Adani Enterprises said, "The Board takes this opportunity to thank all the investors for your support and commitment to our FPO. The subscription for the FPO closed successfully yesterday. Despite the volatility in the stock over the last week, your faith and belief in the Company, its business, and its management has been extremely reassuring and humbling."
However, the billionaire added, "today the market has been unprecedented, and our stock price has fluctuated over the course of the day. Given these extraordinary circumstances, the Company’s board felt that going ahead with the issue will not be morally correct. The interest of the investors is paramount and hence to insulate them from any potential financial losses, the Board has decided not to go ahead with the FPO."
Adani is working with the booking running lead managers (BLRM) to refund the proceeds of FPO to investors' bank accounts. BLRMs of the FPO are -- Axis Capital, ICICI Securities, Jefferies India, SBI Capital Markets, BOB Capital Markets, IDBI Capital Markets & Securities, JM Financial, IIFL Securities, Monarch Networth Capital, and Elara Capital (India).
Among anchor investors who bid for the FPOs are --- Maybank Securities, Abu Dhabi Investment Authority, SBI Employees Pension Fund, LIC, SBI Life Insurance, HDFC Life Insurance, AI Mehwar Commercial Investments, ABS Direct Equity Fund LLC - India Series 1, BNP Paribas Arbitrage, Societe Generale, and Jupiter India Fund, as per the filing on January 25.
Talking about the impact of the withdrawal of FPO, Nirav Karkera, Head of Research at Fisdom said, "The FPO was critical to funding capital-intensive growth projects in critical segments of green hydrogen, greenfield expressway construction and additional developmental work in select airport projects. A component of the proceeds was earmarked to service debt to the tune of ₹4,000 crore."
Karkera added, "the withdrawal of the FPO has not just caused an urgent demand for the amount needed for the debt servicing but is also expected to slow the progression of growth ventures in planned sunrise businesses."
Although Adani reiterated that their balance sheet is very healthy with strong cashflows and secure assets along with a good track record of servicing debt.
However, Fisdom expert believes while the company seems confident of being able to run planned operations and service upcoming debt obligation through internal accruals, it is almost obvious that the group will either need to pace out their ambitious expansionary roadmap or seek alternate sources of funding which would come at a relatively higher cost.
"Market participants seem to be pricing in the fact that either way, the previously assessed growth prospects stand challenged and the probability of any upside is at least significantly deferred if not completely erased in the medium term," Karkera added.
What about the allegations?
The root cause of the troubled days in Adani came after the US-based Hindenburg Research on January 24th in a report accused the conglomerate of fraud, tax evasion, and stock manipulation among others. Since then, both Adani and Hindenburg have been in a tug of war.
Explaining in detail about the allegations, Sonam Srivastava, Founder at Wright Research, SEBI Registered Investment Advisor said, "While the overvaluation of the Adani stocks was not a surprise, the detailed allegations of fraud and market manipulation are pretty horrendous. There have been rumours about the same on social media last year, but the regulators never took a stand, and the allegations died down. At the same time, the Adani stocks continued to grow and even be included in the index."
She added, the detailed investigations by Hindenburg are a revelation and would help the Indian market by clearing up the ambiguous corporate governance issues of Adani companies.
Further, Wright Research founder explained that while the tug of war is still going on between Adani and Hindenburg, it is quite clear that Adani has had very little auditory supervision, almost no coverage by analysts and the regulator has not taken any steps to investigate their business processes or price actions. Adding she said, "We hope that this situation gets clarified, regulators step up and any wrongdoing or lack thereof comes our clearly for all the capital market participants."
Talking about repercussions could these allegations have for India broadly, Srivastava said, "The Hindenburg report alleges that such instances of capital market manipulation are common in India and no one can stand against these issues, which is simply not true as India has a transparent and highly regulated capital market. I truly wish that the whole nation is not coloured based on the actions of one business conglomerate. Indian business environment aside from this issue remains robust and growing."
