Published: 02nd February 2023
#WhatTheFAQ: Why did Gautam Adani withdraw a fully subscribed FPO?
Gautam Adani's business empire's shares saw a significant dip following allegations of fraud by an activist US investment group Hindenburg Research
Adani Enterprises on Wednesday, February 1, said it has decided to withdraw its fully subscribed Rs 20,000-crore follow-on public offer (FPO) and will return the proceeds to investors. The announcement came a day after the company's FPO was subscribed fully on the last day of the offer on Tuesday, January 31.
Touted to be Asia's richest man (well, not anymore), what went wrong with his business empire? What does this mean for his shares? Today's FAQ will dive into these questions.
What has been alleged?
On January 24, Hindenburg Research — an activist US investment group that bets on stocks falling — accused Adani Group of committing "a brazen stock manipulation and accounting fraud scheme over the course of decades", as per a report by AFP.
Amidst other allegations, the report stated that Gautam Adani, Founder and Chairman of the Adani Group, has amassed a net worth of roughly $120 billion, adding over $100 billion in the past three years largely through stock price appreciation in the group’s seven key listed companies, which have spiked an average of 819% in that period.
Hindenburg's two-year investigation also found that the elder brother Vinod Adani, "through several close associates, manages a vast labyrinth of offshore shell entities."
"We believe the Adani Group has been able to operate a large, flagrant fraud in broad daylight in large part because investors, journalists, citizens and even politicians have been afraid to speak out for fear of reprisal," it said.
The research report also said a pattern of "government leniency towards the group" stretching back decades had left investors, journalists, citizens and politicians unwilling to challenge its conduct "for fear of reprisal".
Their research was conducted after "speaking with dozens of individuals, including former senior executives of the Adani Group, reviewing thousands of documents, and conducting diligence site visits in almost half a dozen countries", the report said.
What has been Adani's reaction to the allegations?
Following the publication of the report, the Adani group stated that they are shocked that Hindenburg Research published its report without making any attempt to contact them or verify the factual matrix, as per a report by The New Indian Express.
Jugeshinder Singh, CFO of Adani Group, said that the report is a malicious combination of selective misinformation and stale, baseless and discredited allegations that have been tested and rejected by India’s highest courts.
He added that the timing of the report’s publication clearly betrays a brazen, mala fide intention to undermine the Adani Group’s reputation with the principal objective of damaging the upcoming FPO from Adani Enterprises, the biggest FPO ever in India.
Additionally, the firm, in response to the allegations, issued a 413-page statement claiming that the allegations are a “selective regurgitations of public disclosures or rhetorical innuendos colouring rumours as fact", as per a report by TNIE.
What happened to his shares following the report?
Once the allegations came to the fore, shares of Adani Group firms slumped on Wednesday and have lost more than Rs 7 lakh crore of their combined market capitalisation in the last five trading sessions as per a report by PTI. The decline is about 38% compared to the market valuation at the end of trading on January 24, the day when the report was released. At the end of Wednesday's trading session, all the group companies settled in negative territory with the shares of three companies hitting their lowest price band.
What is FPO? Why did Adani withdraw the FPO?
Firstly, FPO, is a process by which a company, which is already listed on an exchange, issues new shares to the investors or the existing shareholders. But Adani decided not to go ahead with the fully subscribed FPO.
Billionaire Gautam Adani has said the decision to withdraw a fully subscribed share sale of the flagship firm of his group was primarily because of "volatility in the market", as per a PTI report.
"After a fully subscribed FPO, yesterday's decision of its withdrawal would have surprised many. But considering the volatility of the market seen yesterday, the board strongly felt that it would not be morally correct to proceed with the FPO," Adani said in an address to investors on Thursday, February 2.
The decision, he said, will not have any impact on existing operations and future plans. "We will continue to focus on timely execution and delivery of projects," he said. The fundamentals of the company are strong, Adani asserted.
"Our balance sheet is healthy and assets robust. Our EBITDA levels and cash flows have been very strong and we have an impeccable track record of fulfilling our debt obligations. We will continue to focus on long-term value creation and growth will be managed by internal accruals," Adani said. He also informed that the group would review the capital market strategy once the market stabilizes, as per the PTI report.