Mumbai Adani Group faces a formidable challenge The Rs 20,000-crore follow-on public offer (FPO) is struggling to gain momentum amid a fall in the group company’s shares. 4.4 trillion in investor wealth in two days. The FPO received bids for only 470,000 shares, or just 1% of the shares on offer, on Friday, the first day of the three-day share sale.
Despite the situation, the group is going ahead with its FPO. In an interview on Sunday, Adani Group Chief Financial Officer Jugshinder Singh said, “Our objective is, one, to highlight to the stakeholders and investors that the report is just a collection of misrepresentations and second, to keep the FPO going.”
While it remains to be seen how the FPO pans out, Mint looks at various scenarios and what they would mean for the share sale.
Goes on with the current deal:
If Adani sticks to its stand, it needs to ensure that the offer is at least 90% subscribed for it to be successful. Oversubscription in the Non-Institutional/HNI and Retail Investor categories cannot be adjusted against under-subscription in the Institutional category. However, the oversubscription in the Institutional category may be allocated against the subscription in other categories. Thus, a strong oversubscription in the institutional category would be significant.
“Given that only 50% of the offer value is to be paid upfront, the deal needs to generate demand 10,000 crores so far. QIB (Qualified Institutional Buyer) being 50% of the deal means an institutional book size 5,000 crores, of which Around 3,000 crores have already been raised from the anchor book, barring the second 2,000 crore in the main book in the QIB category. To ensure 100% subscription to the offer, A capital markets lawyer, on condition of anonymity, said the Rs 2,000-crore institutional book would need to see bids valued at 3.5 times to seal the deal.
Another option for investor demand may be underwriting. Adani may ask its merchant bankers to reduce the shortfall in investor demand to ensure this. Yes Bank’s 15,000 crore FPOs exercised the option of underwriting in 2020, after which the deal only managed to garner 14,267 crore from investors.
“FPOs are not underwritten. There is no special requirement for this. Singh said, anyway it is not a contingency for us
Book-building public offer can be extended under SEBI laws. However, with any expansion comes a need for a price revision. SEBI has allowed companies to revise the price band up or down by 20 per cent. The offer period has to be extended by at least three working days. In total, the rules allow a book-building public offer to remain open for subscription for 10 working days.
The price range of the FPO has been fixed between 3,112 more 3,276. An additional offer has been made to retail investors 64 discount per share. To be sure, extending the offer period with a price revision can have its own complications. Retail investors may either withdraw or modify their bids within the offer period, and an extension and a downward price revision may result in retail investors withdrawing their bids. On the other hand, anchor investors cannot modify or withdraw their bids. A price cut would mean that these investors would be at a loss on day one. Additionally, a price cut would mean that the company would raise less money than intended, which would affect the use of proceeds as outlined in the prospectus.
Avoid / Call-off the deal
Adani can either call off the deal immediately or after the bidding period, wait for the current storm to abate and then return to the market once the stock prices stabilise. Under the capital market laws, there is no cooling period for starting a second attempt at an FPO. The group may alternatively look at other fundraising avenues. However, canceling the deal would pose a serious reputational risk to the group and impact the group’s stock prices.
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