Adani share sale fate hangs in balance as rout hits US$75b

AS the selloff in Adani Group shares goes on, the key question on investors’ minds is whether short-seller Hindenburg Research has done enough damage to derail the flagship firm’s US$2.5 billion equity sale.

Overall subscription for the offering by Adani Enterprise excluding the amount allotted to anchor investors, stood at 20 per cent around noon in Mumbai on Tuesday (Jan 31), the last day of bidding for categories including institutional and retail investors. The company’s shares rose today, but remained below the floor price set for its follow-on share sale.

A failure to meet the fundraising goal for what is India’s largest follow-on equity sale can further dent investor confidence in the Adani Group as it would complicate plans to refinance debt and fund expansion plans. It will also be a big blow to the prestige of Asia’s richest man, who is witnessing one of the biggest billionaire wipeouts. Ten of the conglomerate’s companies have seen about US$75 billion in market value erased as the rout entered a fourth session.

In a vote of confidence for Adani, Abu Dhabi’s International Holding said on Monday it will invest about US$400 million in the follow-on share sale. The funding from IHC, which is controlled by a key member of the emirate’s royal family, will represent about 16 per cent of the offering and follows an almost US$2 billion investment in Adani’s companies last year. 

“IHC’s participation may lend some tactical sentiment support,” said Nitin Chanduka, an analyst with Bloomberg Intelligence. “Markets will look for more clarity on the allegations before a meaningful uptick in the group’s stocks,” he said on the broader outlook.

While the impact from Hindenburg’s scathing report may linger on, its timing put the mega equity sale at the heart of the turmoil and confounded market watchers. Adani Enterprises had lured dozens of anchor investors before the report became news, but the slow uptake by retail and other groups signals that sentiment is likely hit due to Hindenburg’s allegations that the conglomerate used a web of firms in tax havens to inflate revenue and stock prices as debt piled up.

Adani Total Gas plunged by the 10 per cent daily limit on Tuesday, as five of the 10 listed group stocks declined. Securities of the group rebounded in the dollar bond market as well, after some dropped to record lows the day before.

Adani is seeking to execute the landmark share sale to repay some of the group companies’ debt just as it refutes allegations made by Hindenburg last week. The rapid decline in share prices has also weighed on India’s stock market, where some of his companies were the top performers last year.

There will be no change to the pricing and the share sale will proceed as scheduled, Adani Group CFO Jugeshinder Singh told news channel CNBC TV-18 in an interview earlier.

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While investors in Indian public offerings typically wait until the last day of the sale – Tuesday – to place bids, other large-size follow-ons before Adani’s have had much stronger adherence after two days of books open. 

One such offering by Yes Bank in July 2020, which raised US$2 billion, had subscription of about 24 per cent of shares on sale on the first day of the offering, according to a report by Mint newspaper at that time. The percentage rose to 53 per cent on day two, before finally hitting 95 per cent at the end of the offering.

For Adani’s sale, the overall subscription level of 20 per cent compares with 3 per cent as of Monday’s close. Retail investors bid for 6 per cent of the shares on offer to them, while the company’s employees bid for 23 per cent of the shares for their category. The non-institutional part that includes wealthy individuals had been taken up 17 per cent. Qualified institutional investors bid for close to half of the 12.8 million on offer.

Meanwhile, Soren Aandahl, founder and chief investment officer at short-selling firm Blue Orca Capital, lauded Hindenburg Research’s report. Investor Bill Ackman earlier said the report is “highly credible” and that there’s too much liability exposure for the banks involved in Adani’s ongoing share sale.

The rout in Adani-related companies has undermined Indian stock benchmarks, which have become the biggest laggards in Asia Pacific this year. That’s worsening the outlook for a market that was already coming under pressure after a rally in 2022 and signs of a rotation into North Asia.

The Hindenburg report “represents a crossroads” for India’s emerging stock market, and “raises serious questions about the governance standards that need to be matured” as its capital markets develop, Aandahl said. BLOOMBERG