Tuesday marks a critical day for Asia’s richest man Gautam Adani
as his flagship firm closes books on a Rs 200-billion ($2.5 billion) share sale amidst the turmoil triggered by short-seller Hindenburg Research.
Shares of Adani Enterprises Ltd. have plunged about 7% below the floor price set for the follow-on equity sale owing to a broad three-day selloff that’s erased more than $68 billion of market value from Adani Group
companies. Overall subscription for the offer, India’s largest follow-on equity sale, stood at just 3% as of end Monday.
That’s caused some analysts following the share sale to be skeptical about whether there will be enough demand under the current terms. Adani though will be hoping that the funding from Abu Dhabi’s International Holding Co. helps restore trust in his ports-to-cement business and lures buyers on the last day. IHC, which is controlled by a key member of the emirate’s royal family, said Monday it will invest about $400 million in the share sale.
Adani vs Hindenburg Research: All you need to know
<p>The Adani Group has lost billions of dollars in market share after the Hindenburg Research released a report alleging brazen stock manipulation and improper use of offshore tax havens. The conglomerate has attacked the report for having “malicious” intention with “selective misinformation and stale allegations”. From a net worth of nearly $125 billion late last year and being the second richest person, Gautam Adani is now ranked seventh in the world with a fortune worth $92.7 billion.</p>
<p>Hindenburg Research published a report on the Adani Group on January 24 saying the firm has engaged in “brazen stock manipulation and accounting fraud scheme over the course of decades”.</p>
<p>Hindenburg said its report, “Adani Group: How the World’s 3rd Richest Man is Pulling the Largest Con in Corporate History,” followed a two-year investigation.</p>
<p>The report by the US-based investment research firm also accused the Adani Group of improper use of offshore tax havens and flagged concerns about the group’s high debt.</p>
<p>The report from Hindenburg said it judged the seven key Adani listed companies to have an “85% downside, purely on a fundamental basis owing to sky-high valuations.”</p>
<p>Hindenburg Research, founded by Nathan Anderson, listed 88 questions it invited the company to answer. Most of the allegations involved concerns about the group’s debt levels, activities of its top executives, use of offshore shell companies and past investigations into fraud.</p>
<p>The report by the US-based short-seller triggered a three-day selloff that has now erased nearly $72 billion market value off Adani group’s listed companies.</p>
<p>The report by Hindenburg Research came just two days before the launch of the Rs 20,000-crore FPO by Adani Enterprises. </p>
<p>Adani Enterprises’ $2.5 billion secondary share sale entered its second day on Monday amid weak investor sentiment. The stock was trading at Rs. 2,686, 13.6% below the Rs. 3,112 lower end of the offer price band. The upper band is Rs. 3,276.</p>
<p>Initial data from stock exchanges on Monday showed Adani has now received bids for 687,840, or 1.5%, of the 45.5 million of shares on offer. The deal closes on Tuesday.</p>
<p>In a 400-page rebuttal, Adani Group accused Hindenburg of attacking India and its institutions and of breaking securities and foreign exchange laws. <br /></p>
<p>“This is not merely an unwarranted attack on any specific company but a calculated attack on India, the independence, integrity and quality of Indian institutions, and the growth story and ambition of India,” Adani’s statement said.</p>
<p>Adani Group dismissed the report, saying it’s a “malicious combination of selective misinformation and stale and discredited allegations that have been tested and rejected by India’s highest courts”.</p>
<p>Adani Group also highlighted the timing of the report stating it “clearly betrays a brazen, mala fide intention to undermine the Adani group’s reputation with the principal objective of damaging the follow-on public offering from Adani Enterprises”.</p>
<p>In its response to Hindenburg, the Adani Group said none of the 88 questions was “based on independent or journalistic fact finding.” It rejected many questions as misleading or biased. In response to other questions, the group attached documents and tables of data and said it had followed local laws. </p>
<p>Adani group claimed the Hindenburg report was intended to enable the US-based short seller to book gains by crashing stock prices.</p>
<p>In response, the Hindenburg firm denied the accusations and said Adani’s “bloated” response largely confirmed its findings and failed to specifically answer 62 of its 88 questions. It said the group was trying to conflate its rise with the success of India itself.</p>
<p>”To be clear, we believe India is a vibrant democracy and an emerging superpower with an exciting future,” Hindenburg said in a statement. “We also believe India’s future is being held back by the Adani Group, which has draped itself in the Indian flag while systematically looting the nation.”</p>
<p>A “fraud is fraud, even when it’s perpetrated by one of the wealthiest individuals in the world,” it said, adding, “Adani also claimed we have committed a ‘flagrant breach of applicable securities and foreign exchange laws’. Despite Adani’s failure to identify any such laws, this is another serious accusation that we categorically deny.”</p>
“IHC’s participation may lend some tactical sentiment support but they have been investors in the group before the FPO too,” said Nitin Chanduka, an analyst with Bloomberg Intelligence. “Markets will look for more clarity on the allegations before a meaningful uptick in the group’s stocks,” he said on the broader outlook.
Adani is seeking to execute the landmark share sale just as it refutes allegations by Hindenburg that the Indian conglomerate used a web of companies in tax havens to inflate revenue and stock prices even as debt piled up. There will be no change to the pricing and it will proceed as scheduled, Adani Group CFO Jugeshinder Singh told news channel CNBC TV 18 in an interview earlier.
While investors in Indian public offerings typically wait until the last day of the sale to place bids, other large-size follow-ons before Adani’s have had much stronger adherence after two days of books open.
One such offering by Yes Bank Ltd. in July 2020, which raised $2 billion, had subscription of about 24% of shares on sale on the first day of the offering, according to a report by Mint newspaper at that time. The percentage rose to 53% on day two, before finally hitting 95% at the end of the offering.
For Adani’s sale, retail investors had bid for 4% of the shares on offer to them, while the company’s employees bid for 13% of the shares for their category. The non-institutional part that includes wealthy individuals had been taken up 5%. Qualified institutional investors bid for 4,576 shares, a fraction of the 12.8 million on offer.
Some market watchers are less pessimistic.
“Adani Enterprises could rally today as the likelihood of the FPO subscription reaching 90% improves dramatically,” said Brian Freitas, an equities analyst who publishes on the platform Smartkarma, after the IHC investment announcement. “Still, the issues raised in the Hindenburg report will be an overhang for the near future.”