Adani confident of FPO sailing through; SEBI, other regulatory bodies probing sell-off

Richest Asian Gautam Adani's group on Sunday expressed confidence that the Rs 20,000 crore follow-on share sale of its flagship firm will sail through despite a massive hammering of the conglomerate's stocks following a scathing report by a US-based short seller.

Group CFO Jugeshinder Singh said no change in offering price or schedule is being considered due to temporary volatility in the market as the follow-on public offer (FPO) of Adani Enterprises Ltd is the best vehicle for strategic institutional investors to own a pie of the conglomerate's fast expanding airports, mining, roads, new energy and data centre businesses.

All seven Adani group companies' stocks fell sharply over the last two trading sessions, wiping out Rs 10.7 lakh crore of investor wealth after Hindenburg Research alleged that the ports-to-energy-to-cement conglomerate had engaged in "brazen stock manipulation and accounting fraud" for decades.

Also Read: Adani Group's full reply to Hindenburg expected after share sale

The sell-off is being looked into by market regulator SEBI and stock exchanges.

In an interview to PTI, Singh said the group will release a comprehensive response to the Hindenburg report, "providing documentary evidence" to "clearly outline that there was no research done and that there wasn't any investigating reporting. Only pure baseless misrepresentation of factual situations, if not lies."

He cited an example of the Hindenburg report alleging that inflation in revenue was visible from an asset transferred to a private company and the private company immediately writing down that asset.

"That is pure misrepresentation of our disclosures. Adani Enterprises Ltd (AEL) had already written down that asset and AEL had already booked a loss, after which that asset went over to the private side. It was disclosed as a related party transaction. They (Hindenburg) simply took half of it and therefore it is deliberate misrepresentation and falsehood. And the (Hindenburg) report is full of such points," he said. "They deliberately misled."

The FPO of AEL will go on as scheduled, he said, expressing confidence that it will be fully subscribed by the end of the offer period on January 31.

The share sale -- the second largest in India -- got subscribed just 1 per cent on the opening day on Friday. Against an offer of 4.55 crore shares of AEL, only 4.7 lakh were subscribed, according to information available from the BSE.

AEL fell almost 20 per cent to trade below the offer price of its secondary sale as all the seven listed companies of the conglomerate took a beating in the aftermath of the Hindenburg report. The firm is selling shares in a price band of Rs 3,112 to Rs 3,276. On Friday, its share price closed at Rs 2,762.15 on the BSE.

"All our stakeholders including bankers and investors have full faith in the FPO. We are extremely confident about the success of the FPO," he said.

On Wednesday, Adani Enterprises raised Rs 5,985 crore from anchor investors.

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Asked why would an investor subscribe for the FPO when the same share is available in the open market at a lower price, Singh said AEL has a very limited free float and so while retail investors looking for 50-100 shares can buy from the market, a strategic institutional investor would not find the chunk of shares they need.

"For an institutional investor who likes larger chunky holding, that option is not available as the free float is not there," he said. "One of the primary aims of the FPO is to increase liquidity of shares and increase the free float."

He further said strategic long-term institutional investors are not investing in AEL for just the value of its shares. "They are investing in AEL as an incubator. The value of AEL sits more in the airports business it holds, in the road business it is doing, in new energy projects it is doing, in data centre business and in the mining business. All these businesses are performing very well."

AEL currently houses new businesses such as hydrogen, where the group plans to invest USD 50 billion over the next 10 years across the value chain, flourishing airport operations, mining, data centre and roads and logistics. These businesses are planned to be demerged between 2025 and 2028 after they achieve a basic investment profile and maturity.

"Investors investing in AEL will get those businesses as well. They see long term value is still there. So short term volatility in price doesn't make a difference to the value of airports business, to the value of roads business, to the value of new energy ventures and to the value of data centres. For long-term investors who want chunky positions, this (FPO) is the best option," he said.

The group is looking to become one of the lowest cost producers of hydrogen -- a fuel of the future that has zero carbon footprint. It is also betting big on its airport business with an aim to become the largest service base in the country in the coming years, outside of government services.

Adani, 60, started as a trader and has been on a rapid diversification spree, expanding an empire centred on ports and coal mining to include airports, data centres and cement as well as green energy. He now owns a media company too.

Singh said the follow-on share sale is aimed at widening the shareholder base by bringing in more retail, high networth and institutional investors.

This would also address concerns of liquidity by increasing the free float, he said, adding the company wants to increase the participation of retail investors and that is why it chose a primary issue instead of a rights issue.

AEL will use the money raised to fund green hydrogen projects, airport facilities and greenfield expressways, besides paring some of its debt.

On the sell-off in group stocks, he said the group is concerned about the impact it will have on minority small investors and hoped regulatory authorities will "look into" the "deliberate" attempt to create "excess volatility".

"That (sell-off) is something that should be looked into," he said without elaborating.

Irrespective of that, "we are confident that the offer will go through," he added.

Asked if the retail portion too will be full-subscribed, he evaded a direct reply, saying, "We are confident that the issue will be fully subscribed."

On Friday, retail investors put in bids for close to 4 lakh shares against 2.29 crore shares reserved for them, while qualified institutional buyers (QIBs) sought just 2,656 shares against 1.28 crore reserved for them. Non-institutional investors sought 60,456 shares against an offer of 96.16 lakh shares.

On the response that the company will bring out on the Hindenburg report, Singh said the group has put together a comprehensive response in 3 days time to a report that purportedly took 2 years to prepare.

Regarding taking legal action against the US firm, he said, "We have now discovered one part which is that this report is a misrepresentation. The second part will be to understand the deliberate intent to harm Indian shareholders and business. That will be a legal review and once it is over a view will be taken."