Adani FPO: The 3 options before the conglomerate
Mint looks at various scenarios and what they would mean for the share sale
The Adani group faces a formidable challenge as its ₹20,000 crore follow-on public offer (FPO) struggles to gain momentum amid a plunge in group company stocks that erased ₹4.4 trillion of investor wealth over two days. The FPO received bids for only 470,000 shares, or just 1% of the shares on offer, on Friday, the first day of the three-day share sale.
Despite the situation, the group is moving ahead with its FPO. In an interview on Sunday, Adani group chief financial officer Jugeshinder Singh said, “Our objective remains, one, to highlight to stakeholders and investors that the report is just a collection of misrepresentations and, secondly, to continue with the FPO.”
While it remains to be seen how the FPO pans out, Mint looks at various scenarios and what they would mean for the share sale.
Goes ahead with the current deal:
If Adani sticks to its stance, it needs to ensure that the offer is at least 90% subscribed for it to succeed. Oversubscription in the non-institutional/HNI and retail investor categories can’t be adjusted for under-subscription in the institutional category. However, oversubscription in the institutional category can be allocated against subscriptions in other categories. Thus, a strong oversubscription in the institutional category will be key.
“Considering that only 50% of the offer price is to be paid upfront, the deal needs to generate a demand of ₹10,000 crore as of now. QIB (qualified institutional buyer) being 50% of the deal means an institutional book size of ₹5,000 crore, of which ₹3,000 crore approx has already been raised from the anchor book, leaving another ₹2,000 crore in the main book in the QIB category. To ensure 100% subscription of the offer, the ₹2,000 crore institutional book will need to see bids worth 3.5 times to ensure the deal goes through,” a capital markets lawyer said on the condition of anonymity.
Another alternative to investor demand could be underwriting. Adani could ask its merchant bankers to underwrite the shortfall in investor demand to ensure the deal goes through. Yes Bank’s ₹15,000 crore FPO in 2020 used the underwriting option after the deal managed to raise only ₹14,267 crore from investors.
“FPOs are not underwritten. There is no specific requirement for this. That’s not a contingency for us anyways,” Singh said. Extend the offer; cut the offer price
A book-building public offer can be extended under Sebi laws. Any extension, however, needs to be accompanied by a price revision. Sebi allows companies to revise the price band by 20%, upwards or downwards. The offer period will have to be extended by three working days at least. Overall, the rules allow a book-building public offer to remain open for subscription for 10 working days.
The price range of the FPO has been fixed between ₹3,112 and ₹3,276. Retail investors have been offered an additional ₹64 discount per share. To be sure, extending the offer period with a price revision can have its own complications. Retail investors can either withdraw or revise their bids within the offer period, and an extension and downward price revision could result in retail investors withdrawing their bids. On the other hand, anchor investors cannot revise or withdraw their bids. A price cut would mean that these investors will be sitting on a loss on day one. Additionally, a price cut would mean that the company will raise less money than intended, which will affect the use of proceeds outlined in the prospectus.
Defer/Call-off the deal
Adani can call off the deal either immediately or post the bidding period, wait for the current storm to blow over and then return to the market when stock prices have stabilized. Under capital market laws, there is no cooling period for launching a second attempt at an FPO. The group can alternatively look at other fundraising avenues.However, calling off the deal will carry a serious reputational risk for the group and impact the group’s stock prices.
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First Published:29 Jan 2023, 11:55 PM IST
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