NATIONAL, 4 FEBRUARY, 2023 (GPN):  The decision to not proceed with the Adani FPO despite full subscription was taken at a meeting of the board of directors of the company on Wednesday 1st February, 2023.

The FPO which closed on Tuesday 31st January, was oversubscribed 112% as funds started pouring in at the list minute. While the demand from retail investors was low at just 12%, the non-institutional investor category was oversubscribed 3.32 times while that of qualified institutional buyers (QIB) was also oversubscribed 126%.

“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 withdrawing the completed transaction,” the company said in a statement.

February 1, shares of Adani Enterprises crashed 34.72 per cent to hit a day low of Rs 1,942. The stock, moreover, is down over 49 per cent from its 52-week high of Rs 4,189.55.

The FPO was under stress following a damaging report by American short-seller Hindenburg Research which made several allegations relating to stock manipulation and accounting fraud against the ports-to-energy conglomerate and even warned against 85% downside purely on a fundamental basis owing to sky-high valuations.

Sources said that there is a need to go into great detail into each of the Adani companies to understand what really happened. However, as per him, the age-old adage of innocent until proven guilty still holds true, and that the Hindenburg Research seems to be biased.Short selling occurs when an investor borrows a security and sells it on the open market, planning to buy it back later for less money. Short sellers bet on, and profit from, a drop in a security’s price.

Hindenburg Research, a US-based short-seller firm, has been in the news since January 24 when it released a report stating that the Adani Group is artificially boosting its share prices and is overvalued by over 80 per cent. Since that day, the group has cumulatively lost over $66 billion in market capitalisation. Gautam Adani, who was the second richest person in the world just days ago, had slipped to the seventh spot in the Forbes ranking a week later.

Hindenburg said that Adani’s response “largely confirmed” its findings and that “fraud can not be obfuscated by nationalism”.

But behind all the fiasco is the hitherto relatively unknown founder of Hinderburg Research, Nathan ‘Nate’ Anderson.Sources beleive that the detailed investigations by Hindenburg are a revelation and would help the Indian market by clearing up the ambiguous corporate governance issues and is a boon to small cap retail investors.

In response to the allegations, the Adani Group issued a 413-page response on Sunday saying that the report “is nothing short of a calculated securities fraud under applicable law”.

“This is not merely an unwarranted attack on any specific company but a calculated attack on India, the independence, integrity and quality of Indian institutions, and the growth story and ambition of India,” the conglomerate said.

Citing the unprecedented crash in stock prices, Adani Enterprises Chairman Gautam Adani said, in a video statement early Thursday morning that investor interest is paramount, which was why they cancelled the Rs 20,000 crore-worth follow-on public offer (FPO) after it was fully subscribed. He said that it would “not be morally correct” to proceed with the FPO, considering the volatility in the market. Adani also said that in his over four decades as an entrepreneur, he has been blessed with overwhelming support from all stakeholders.

Despite retail investors staying away from the Rs 20,000 crore FPO, which was India’s largest so far, the issue had managed to sail through with strong support from non-institutional buyers, which included family offices of various HNIs and top industrialists.

“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,” Adani said.

“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 and future plans. We will continue to focus on long term value creation and growth will be managed by internal accruals. Once the market stabilizes, we will review our capital market strategy,” the 60-year-old Adani said.

Surpassing Bill Gates and Warren Buffet, Adani had become the world’s third richest person by the end of 2022 with a $121 billion worth empire.

According to Bloomberg Billionaires Index,Nearly $58 billion has been wiped out from Gautam Adani’s fortune in six days.the tycoon is now worth $61.3 billion and has slipped to the 21st spot on the billionaire list.

Just 2 day back the Forbes real-time billionaires list ranked Adani as the 15th-richest person in the world, with a net worth of $74.7bn. He was third on the list last week.

The country’s largest lender SBI said its overall exposure to the Adani Group is at 0.88 per cent of the book or around Rs 27,000 crore.While Bank of Baroda and Punjab National Bank have exposures of Rs 5,380 crore and Rs 7,000 crore, respectively.Axis Bank has an exposure of 0.94% of its net advances to Adani Group.

The Opposition has been seeking a probe into the businesses of embattled industrialist Gautam Adani and the investments of the Government Institutions like SBI and LIC in Adani Businesses, after the Hindenburg report raised concerns.

The opposition wants a probe by a parliamentary panel or a Supreme Court-appointed committee on the charges against the ports-to-energy business empire which counts the LIC and SBI among key investors.

SBI chairman Dinesh Khara, said the bank does not envisage the embattled ports-to-mining group facing any challenge to service its debt obligations and stressed that SBI has not given any loans against shares to the group.

Lending to Adani Group projects is with regard to ones having tangible assets and adequate cash flows, Khara said, adding that the group has an excellent repayment record.

He also said there has not been any refinance request, which has come from the Adani group.

LIC issued a statement saying’LIC has not sold any Adani shares to suffer real loss.”LIC has made notional profit in the case of Adani shares because the investment is about Rs 36,474.78 crore.”The value of it even today is Rs 56,000 crores.’

LIC said it is reviewing the Adani group’s response to concerns raised by Hindenburg. The insurer holds a 4.23 per cent stake in the flagship Adani firm, while its other exposures include a 9.14 per cent stake in Adani Ports and 5.96 per cent in Adani Total Gas.

A finance ministry official said, the Adani Group did not yet fall in the “too big to fail” category. The official, however, said given the upheaval in the shares of the Adani Group companies and the progress of its flagship Adani Enterprises Ltd’s Rs 20,000 crore follow-on public offer, the Securities and Exchange Board of India, should have intervened.

“SBI and LIC’s exposure to any given company is far below the level where it should be a concern to any investor,” Finance Secretary TV Somanathan, said to GPN.

“The exposure of LIC towards Adani Group is around 1 per cent, while for public sector banks is also less than 1 per cent. So, the Group cannot be termed as too big to fail, yet… unlike IL&FS, this issue seems more similar to the Satyam incident as the underlying assets are still revenue-earning assets… now, with the recent turn of events, regulators will be more alert on such an issue…regulators such as SEBI should have stepped in earlier,”the ministry said.

National Stock Exchange on Thursday placed Adani Enterprises, Adani Ports, Ambuja Cements under ASM (Additional Surveillance Margin) framework with effect from February 3, 2023, which will require 100% margin to trade in their shares.

“There shall be Additional Surveillance Measures (ASM) on securities with surveillance concerns based on objective parameters viz. Price / Volume variation, Volatility etc,” said NSE on its website to explain the measure.

Sensex zoomed over 1200 points after budget 2023 as a couple of announcements related to income tax, infrastructure spending and capital expenditure lifted the market mood. However, the euphoria fizzled out and Sensex was down over 700 points at one point in time.

The BSE Sensex, which has no Adani group stock as constituent, ended at 59,708.08, up 158.18 points or 0.27 per cent on the Budget day.

However, Nifty closed at 17,616.30, down 45.85 points or 0.26 per cent due to selling pressure in two of its constituents (Adani Enterprises and Adani Ports & SEZ).

Adani Power, Adani Total Gas, Adani Wilmar, Adani Green, Adani Transmission, Adani Ports, Adani Enterprises, Ambuja Cements, ACC and NDTV are the ten listed Adani Group stocks on Dalal Street and the shares have crashed up to 50% owing to the Hindenburg effect.

In June last year, the group had raised close to $4.5 billion from 14 international lenders, with Standard Chartered Bank (SCB), Deutsche Bank and Barclays PLC as the lead banks.

The Adani Group is likely to shelve its plans to raise close to $500 million via international bonds and will explore other financing options, including paying the outstanding from internal accruals, to refinance the first tranche of the $4.5 billion debt taken from a clutch of global banks to acquire ACC and Ambuja Cements last year.

Market regulator Securities and Exchange Board of India (SEBI) on Saturday said for orderly and efficient functioning of the market, all surveillance measures are in place to address excessive volatility in specific stocks. In a statement, the market regulator said that it is committed to ensuring market integrity and its structural strength amid the rout of Adani Group stocks.

Post Budget Chief Economic Advisor (CEA) V A Nageswaran said India has the potential to grow at 6.5-7 per cent and will become a $5 trillion economy by 2025-26 and $7 trillion by 2030 depending on exchange rate fluctuation. Along with this Central Board of Indirect Taxes and Customs (CBIC) chief Vivek Johri has said that monthly GST collection is expected to average around Rs 1.50 lakh crore and it will be the new normal in FY24. These statements have boosted the market sentiments.

As for anyone who is in the market — never mind whether as a corporate, conglomerate, broker, banker or even an ordinary day trader or investor — understand the fundamental law that applies: May you be ever so high, the market is above you.

In this round, the market has won. But it is still for Adani now to decide whether he has lost or not. Accepting defeat would mean continuing to fret and fight with the market, with money or other clout, finding shelter underneath the supposedly ulterior motives of the short-seller.

The other way would be to take the blow with humility, as a bad day in the market. Focus on the many good and bounteously cash-yielding businesses and assets more sharply, rebuild what just got broken, and hope that the market will love you again in the course of time. This would be good capitalism.Ends