New Delhi: Shares of Adani Group companies fell on Monday, April 3, after Reuters reported over the weekend that the Securities and Exchange Board of India is investigating possible violation of ‘related party’ transaction rules by the conglomerate.
The report said that the capital markets regulator is probing the group’s dealings with at least three offshore entities that have links to Vinod Adani, the founder Gautam Adani’s brother.
The three entities allegedly entered into several investment transactions with unlisted units of the ports-to-power conglomerate founded by billionaire Gautam Adani over the last 13 years, sources with direct knowledge of the matter told Reuters.
During the trade, Adani Transmission and Adani Green Energy hit 5% lower circuit each, moneycontrol reported. A stock may hit the lower circuit when there is sell pressure with a negligent number of buyers.
The Wire had reported that the fact that the Adani Group is saying that ‘he [Vinod Adani] and Adani [Group] should be seen as one’, as per CNBCTV18, in terms of ownership, it can be assumed he also has influence on the management of the company.
On Monday, Adani Enterprises fell 1.85% to close at Rs 1,717.55 on the BSE.
Adani Ports and Special Economic Zone fell 0.64%, Adani Power 0.55%, Adani Transmission 5%, Adani Green Energy 4.99%, Adani Total Gas 2.37%, Adani Wilmar 2.61%, and NDTV fell 3.10%.
Gautam Adani on March 16 admitted that his brother, Vinod Adani, is part of the “promoter group” of various listed entities. Therefore, SEBI is said to be probing if lack of disclosure on the part of the Adani Group “violated ‘related party transaction’ rules.”
Under Indian laws, direct relatives, promoter groups and subsidiaries of listed companies are considered related parties. A promoter group is defined as an entity that has a large shareholding in a listed company and can influence company policy.
Transactions between such entities have to be disclosed in regulatory and public filings and require shareholder approval above a specified threshold. Violations typically attract monetary fines, the report added.
Therefore, it brings focus on the group companies’ free float status, because publicly traded companies are required to have at least 25% of their shares held by non-promoters to stay listed on exchanges.
Several news outlets have reported that in some Adani Group companies, a majority of the group’s investments’ free float has been held by offshore funds.
According to an analysis by the Morning Context, “if you remove these [offshore] funds, the effective [public] shareholding in Adani Enterprises comes down to only 10%.” In Adani Transmission, the “effective public float is about 7-8%”.
This would be acceptable if it was established that these funds were not owned by people from the Adani family or linked to them. However, the ownership of these funds is unknown because Mauritius is a tax haven.
On March 15, stock exchanges froze the promoter shareholding of Patanjali Foods after the company failed to meet the 25% public shareholding within the stipulated time period. According to Business Standard, the promoter stake in the Baba Ramdev-backed company is currently at 80.82%.
Moreover, Forbes reported that Vinod Adani was a key player in Adani Group’s two big deals. First, by the Adani Group’s own admission, Vinod Adani is the ultimate beneficiary of ACC and Ambuja Cements, not Gautam Adani. And he was also at the heart of another massive deal with French energy giant TotalEnergies.
Additionally, US-based short seller Hindenburg Research, which released its report on January 24, following which Adani Group’s market valuation halved and Gautam Adani was no longer the third wealthiest person in the world, said that Vinod Adani, or his close associates, manage 38 shell companies based in Mauritius.
In fact, in July 2021, SEBI had already written to the custodians of the foreign portfolio investors owning shares in six Adani Group firms, seeking information on their “ultimate beneficiary owners”. These three funds were Albula Investment Fund, Cresta Fund, and APMS Investment Fund. And they have the same address.
Meanwhile, proxy advisory firm Institutional Investor Advisory Services has asked shareholders of Adani Total Gas to vote against a special resolution seeking alterations to the company’s articles of association. It cited lack of adequate transparency in disclosure supporting the resolution, the Financial Express reported.
All this news comes against the backdrop of Adani Group halting some investments and cutting down on capital expenditure, more than two months since Hindenburg Research released its report.