New Delhi: Adani Enterprises has decided to call off its fully subscribed Rs 20,000 crore (US$2.5 billion) follow-on public offer (FPO), the company announced on Wednesday, February 1, as it faces market volatility in the face of allegations that the parent company Adani Group was involved in stock manipulation and accounting fraud.
Meanwhile, reports early on Thursday indicated that the Citigroup Inc.’s wealth arm has stopped accepting securities of Gautam Adani’s group of firms as collateral for margin loans, shortly after a similar decision by the Credit Suisse Group AG.
The Adani Group said in a statement, “Given the unprecedented situation and the current market volatility, the company aims to protect the interest of its investing community by returning the FPO proceeds and withdraws the completed transaction.”
Gautam Adani ‘Our balance sheet is very healthy with strong cashflows and secure assets, and we have an impeccable track record of servicing our debt. This decision will not have any impact on our existing operations & future plans’ @CNBCTV18Live @CNBCTV18News #AdaniEnterprises https://t.co/m0ESjpx4Nh
— Shereen Bhan (@ShereenBhan) February 1, 2023
In a separate development, the news agency Reuters reported, quoting anonymous sources, that India’s market regulator, the Securities and Exchange Board of India (SEBI), is examining the rout of Adani Group shares and looking into any “possible irregularities” in the FPO.
Forbes magazine has also reported on what it said was “evidence the Adani Group likely bought into” the $2.5 billion share sale. The involvement of Elara Capital and Monarch Networth Capital – two entities that Hindenburg Research had alleged were linked to Adani – in the share sale “raises questions about whether any of Adani’s personal funds were deployed to help meet the $2.5 billion target,” the business magazine wrote, adding:
“The only way Adani can actually resolve this issue is to illustrate who did buy all of the shares,” says Tim Buckley, a former investment banker at Citigroup and director at Australia-based Climate Energy Finance, who has been studying the Adani Group for over a decade. “It would be my speculation that there were insiders.”
U.S. hedge fund billionaire Bill Ackman also expressed skepticism about the share offering on Wednesday, tweeting: “I would not find it surprising if the @AdaniOnline offering was rigged with affiliated buyers.”
On Tuesday, Adani Enterprises’ share price fell below the offer price on the opening day of the FPO last week. The shares were sold in a price band of Rs 3,112-3,276 but closed at Rs 2,975 on Tuesday.
Gautam Adani, the chairman of Adani Enterprises, said, “The Board takes this opportunity to thank all the investors for your support and commitment to our FPO.”
“We are working with our Book Running Lead Managers [BRLMs] to refund the proceeds received by us in escrow and to also release the amounts blocked in your bank accounts for subscription to this issue,” the company said.
A Financial Times report said that Adani’s efforts to “ease concerns among investors, including a 413-page response rejecting the US short seller’s allegations, have failed to stem the declines in its stock price”. It said that stocks of Adani Enterprises have slid 40% since the allegations emerged last week.
According to The Hindu, out of the Rs 20,000 crore proceeds from the FPO, Rs 10,869 crore were to be used for green hydrogen projects, work at existing airports and construction of a greenfield expressway. Another Rs 4,165 crore was to be utilised for repayment of debt taken by its airports, road and solar project subsidiaries.
SEBI to investigate fall in shares, possible irregularities
According to Reuters, SEBI is undertaking a full-scale examination of the fall in shares.
The plunge began after Hindenburg Research released a report last week accusing the Adani Group of improper use of offshore tax havens, stock manipulation and accounting fraud. The company has rejected the allegations, saying it has always made the necessary regulatory disclosures.
Reuters reported that SEBI will look into “any possible price manipulation of Adani group stocks, as well as examining possible irregularities in the $2.5 billion share sale of the flagship firm Adani Enterprises, which concluded on Tuesday”. This is the same FPO that Adani has called off.
According to Reuters, stocks of Adani Enterprises plunged 28% on Wednesday, bringing the losses since the Hindenburg report to “more than $18 billion”. Another company, Adani Ports and Special Economic Zone, dove 19%.
“All key departments – corporate finance, surveillance department at the regulator are examining the share price fall. Exchanges are also sending a report,” a second anonymous source told Reuters.
SEBI will also look into Hindenburg’s allegations of dealings between the Adani Group and related entities, according to the news agency.
The story was updated at 1.15 am on January 3, 2023 to add details of the Forbes report and later at 9.45 am on the same day to add updates on Citigroup and Credit Suisse’s decisions.