Adani's FPO makes history for wrong reasons

Gautam Adani went from being the richest Asian to an embattled businessman whose empire is in crisis after Hindenburg Research, the firm focusing on activist short-selling came out with a report saying the dropout-turned-industrialist's company was guilty of using tax havens and raised concerns about its debt levels. Since then, Adani company shares have been in freefall and last night Adani announced that he was calling off the FPO amid the stock rout.

"Given these extraordinary circumstances, the Company’s board felt that going ahead with the issue will 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," Adani said in a statement.

The decision to call off the fully-subscribed FPO amid a Sebi probe into the stock rout has led to Adani making headlines and history for the wrong reasons. Fortune India noted the Adani FPO was touted to be India's first mega FPO and is now the first 'mega FPO' to be called off.

So, what is an FPO and how does it work?

An FPO or a Follow-on Public Offer is when a company already listed on the stock exchange issues shares to investors. A follow-on offering comes after a company has made an initial issuance during the Initial Public Offering (IPO). Also known as secondary offerings, these are usually announced to raise equity or lessen debt. Follow-on Offers pose a risk to the company as share prices may fall due to dilution but it can help them improve the debt-to-value ratio and also the funds can be used by the company to launch new projects.

An FPO works much like an IPO, but can only come after a company is already listed. The proceeds from the sale go to the company that issues the stock. Like an IPO, companies wanting to execute an FPO must fill out the necessary documents.

Once an investor subscribes to an FPO, the money is blocked in their accounts and the company receives proceeds in escrow. Adani announced that they are working with Book Running Lead Managers (BRLMs) to refund these proceeds and release the amounts blocked in investors' accounts for subscription to the FPO.

The firm noted their assets were secure and they have strong cashflows, noting the balance sheet was healthy and the company had a good track record of servicing debts. Amid Adani's worries at home, he's acquired Israel's Haifa port with President Netanyahu calling it an 'enormous milestone'.