Adani’s U-turn amplifies questions of compliance
1 min read . Updated: 20 Mar 2023, 12:19 AM IST
PremiumThe group has acknowledged Vinod Adani as a member, but we need clarity on whether it flouted a free-float rule, manipulated its shares and gained from a regulatory look-away
In a U-turn that amplified questions raised by the Hindenburg report of 24 January, the Adani Group has quit distancing itself from its chairman Gautam Adani’s elder brother Vinod Adani. On 16 March, it informed India’s stock market that the latter was a member of the promoter group. “We would like to submit that Mr Gautam Adani and Mr Rajesh Adani are individual promoters of various listed entities within the Adani Group and Mr Vinod Adani is an immediate relative of the individual promoters," its filing said. “Accordingly, as per the applicable Indian regulations, Mr Vinod Adani is part of the ‘promoter group’ of various listed entities within the Adani Group. This fact has been submitted to Indian regulatory authorities from time to time, in various disclosures." Its rebuttal of Hindenburg’s charges, in contrast, had deflected a set of queries by saying, “Vinod Adani does not hold any managerial position in any Adani listed entities or their subsidiaries and has no role in their day to day affairs." This, however, did not square up with one big fact: the elder brother’s control of Endeavour Trade and Investment Ltd, which acquired ACC and Ambuja Cements for about $10.5 billion from Holcim last year to mark yet another market entry by the infra-focused group. As this fraternal link had duly been disclosed, even the documentation record left Adani’s stance hollow.
Three questions assume urgency. First, did Adani violate India’s free-float norms? On paper, the group’s listed companies barely met the minimum equity of 25% that should be available for public trading. If a chunk of their float portion is found to be under Vinod Adani’s effective control via a web of offshore entities, as alleged by Hindenburg, then it would imply a failure of compliance. An episode of share-price jitters in 2021 over this suspicion prompted the Securities and Exchange Board of India (Sebi), our market regulator, to explore the need for a free-float definition that would exclude shares held by institutions as well (and not just promoters). The logic of keeping strategic interests out of the count did not get far. But it matters. After all, only a sliver of a firm’s equity pie being openly traded exposes it to easy manipulation. That leads us to the second question. Did Adani use an overseas network to manipulate its share prices? This is for a Sebi probe to answer. But we need not delve into forensic trails to identify a few tell-tale signs. Even for a blistering pace of growth, Adani scrips had zoomed off the charts in terms of their price-earning ratios, which had reached multiple hundreds in a bazaar where a ratio above 30 needs a jackpot on its way to justify such a high price. Inflated valuations do have a motive. Equity can be pledged for loans, as Adani did. Although the group has lowered its debt slightly after a share sale to Rajiv Jain’s US-based fund GQG Partners—steadying its market capitalization that had more than halved since Republic Day—what enabled its over-leverage has kept eyebrows raised.
The final question is of India’s infrastructure mega-thrust involving the private sector that could deliver what the country needs, but also has some aspects that risk creating conditions for crony capitalism. So, did Adani’s apparent status as a ‘national champion’ of sorts attract a regulatory look-away? While Adani’s sharp rise and perceived proximity to the current regime are embroiled now in a political row, the episode has put the country’s institutional framework to a test. For the sake of our bet on market democracy, we need clear answers.
