Adani Group’s surprising move — cancels fully subscribed Rs 20,000 cr FPO ‘to insulate investors’

Adani Group’s surprising move — cancels fully subscribed Rs 20,000 cr FPO ‘to insulate investors’

Trigger could be news that Credit Suisse won't accept Adani bonds as collateral for loans. Gautam Adani says not ‘morally correct’ to continue with FPO amid stock price volatility.

Indian billionaire Gautam Adani speaks during an interview with Reuters at his office in the western Indian city of Ahmedabad 2 April 2014 | Reuters/Amit Dave/File Photo

Indian billionaire Gautam Adani speaks during an interview with Reuters at his office in the western Indian city of Ahmedabad 2 April 2014 | Reuters/Amit Dave/File Photo

New Delhi: In an abrupt and surprising move, Adani Enterprises — the flagship company of the Adani Group — announced late Wednesday night that it would be cancelling its fully subscribed Rs 20,000 crore follow-on public offer (FPO).

Saying that it “stands by its investors”, Adani Enterprise in its statement said that “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”.

The latest trigger for this is likely the news reports released Wednesday afternoon saying that international financier Credit Suisse Group AG had stopped accepting Adani Group bonds as collateral for margin loans given to its private banking clients. In other words, Credit Suisse basically said it did not have faith in the value of the bonds issued by the Adani companies.

This triggered a fresh precipitous fall in the stock price of Adani Enterprises and other Adani companies. Adani Enterprises’ stock price plummeted 34.7 per cent Wednesday itself, completely erasing a small rebound it had seen in the previous two days.

The stock hit an intra-day low of Rs 1,942, compared to its closing price the previous day of Rs 2,975. The stock eventually ended the day’s trading session 28.45 per cent lower, at Rs 2,128.70.

Wednesday’s crash comes after significant volatility in the stock prices of Adani Group listed companies following the release of a report by Hindenburg Research Tuesday last week. The report alleged significant corporate malpractice and fraud on the part of Gautam Adani, the Adani Group chairperson, his family, and likely even his companies.

Following the release, the Adani Group saw its listed stocks lose a combined value of about Rs 3.19 lakh crore by end of trading Friday, with the fall in stock prices ranging from 5-20 per cent across the seven listed companies.

Also read: Despite Adani Group’s high debt levels, risk to Indian banks is relatively low

‘Continuing with FPO not morally correct’

“The Board takes this opportunity to thank all the investors for your support and commitment to our FPO,” Gautam Adani said in the company’s statement, and reiterated in a video statement issued Thursday morning. “The subscription for the FPO closed successfully yesterday. Despite the volatility in the stock over the last week, your faith and belief in the company, its business and its management has been extremely reassuring and humbling.”

“However, today the market has been unprecedented, and our stock price has fluctuated over the course of the day,” Adani added. “Given these extraordinary circumstances, the company’s board felt that going ahead with the issue would not be morally correct. The interest of the investors is paramount and hence to insulate them from any potential financial losses, the board has decided not to go ahead with the FPO.”

This decision came as a surprise to many as the FPO by Adani Enterprises was fully subscribed, and was seen as a victory for the Adani Group in the face of significant obstacles. However, a closer reading of the bidding details for the FPO could reveal some of its weakness.

What else went wrong?

After a weak start, the FPO ended up being subscribed 1.12 times, buoyed by a strong response from qualified institutional buyers (QIBs), including foreign institutional investors (FIIs) and family offices of big industrialists.

According to reports, the amount allotted to QIBs was subscribed 1.26 times, and that for Non-Institutional Investors (NIIs) — of which family offices are a part — was subscribed 3.32 times.

However, the portions reserved for retail investors and for employees were subscribed only 0.12 times and 0.55 times, respectively, underscoring the lack of faith of the general investors in the stock.

In matters like these, word-of-mouth also plays a major part, and unconfirmed rumours began to spread Wednesday that while several of the NIIs had committed funds to the FPO on paper, the actual funds had not yet been transferred.

The same day, before the cancellation of the FPO, news also began to emerge in the international media that the Adani Group likely bought into its own FPO, another potential sign of weakness.

Adani reassures investors

In his written statement Wednesday and the video Thursday, Gautam Adani tried to reassure investors about the financial health of Adani Enterprises and the other group companies.

“Our balance sheet is very healthy with strong cash flows and secure assets, and we have an impeccable track record of servicing our debt,” the group chairman said. “This decision will not have any impact on our existing operations and future plans. We will continue to focus on long-term value creation and growth will be managed by internal accruals.”

“Once the market stabilises, we will review our capital market strategy,” he added.

(Edited by Zinnia Ray Chaudhuri)

Also read: Adani-Hindenburg row erupts into war of words, neither side backing down