People wait to cross the road past the logo of the Adani Group at a roundabout on Ring Road in Ahmedabad. , Photo Credit: Reuters
the story So Far: Adani Enterprises decided on February 1 To close its ₹20,000 crore follow-on public offer And return the money that he collected from the investors. Adani Group has seen the shares of its publicly listed companies crashing fastbecause of this Decline in overall market capitalization From ₹9.11 lakh crore. A report from the American firm Hindenburg Research did on 24 january Adani Group accused Stock manipulation and accounting fraud. the group has denied all charges.
What is Follow-on Public Offer?
FPO is a process in which a company which is already publicly listed in the stock market issues additional shares to the investors. During an FPO, a company may decide to issue new shares to investors, or existing shareholders of the company may decide to sell their shares to other investors.
Editorial | Warning bells: on the Adani saga
An FPO is similar to an initial public offering (IPO), except that an IPO refers to the issuance or sale of shares by a company to investors when it first taps the public market. Companies can issue FPOs to raise equity capital for various reasons such as paying off debt or improving their capital structure.
FPO can also be a way for existing shareholders to sell their shares and exit the company.
Adani Enterprises, the flagship holding company of the Adani Group, plans to raise Rs 20,000 crore through an FPO that closed last week. The FPO suddenly came under scrutiny sharp drop in its share price After the release of the Hindenburg Research report, the Adani group was accused of several wrongdoings.
There were doubts about whether the shares offered on sale during the FPO would be fully sold as the company’s stock was priced much higher than the market value at that time.
Why did Adani Enterprises call off its FPO and choose to return money to investors?
FPO issued by Adani Enterprises fully subscribed, thanks to the support from large institutional investors and high net worth individuals. The shares were fully subscribed despite the fact that the shares were priced higher than their public market value. The shares which were allotted for sale to retail investors and employees of the company were undersubscribed amid extreme volatility in Adani Group shares. Only about 12% and 55% of the shares that were allotted to retail investors and employees respectively were sold.
On Wednesday, Adani Group Chairman Gautam Adani decided to wind up the FPO and return the money, saying it would be “not ethical” to accept money from investors. an unstable environment And put the investors in loss.
Critics of the Adani Group speculated that the FPO issued by Adani Enterprises and fully subscribed last week could be manipulated by the company. He argued that large investors may be enticed to invest in the FPO by the Adani group to get fully subscribed.
Well-known US billionaire investor and short seller William Ackman also said the FPO could be “rigged”. In particular, critics alleged that Elara Capital (India) Pvt Ltd and Monarch Networth Capital, the companies that allegedly underwrote the FPO, are shell companies by virtue of their ownership, operations, investment portfolio and other attributes. . It should be noted that Report released by Hindenburg Research Last month, it had claimed that Elara Capital and Monarch Networth Capital were used by the Adani group as shell entities to manipulate the financials of both the shares as well as its subsidiaries.
Adani Group in its reply The charge denied that there were any illegal transactions between the group and the alleged shell entities.
what lies ahead?
The fully subscribed FPO helped the Adani group save face and prevented a complete erosion of confidence in the group among investors. A failed FPO would have exposed the group’s inability to raise capital. However, the Adani Group has bigger problems than the beleaguered FPO.
Investor confidence in the group is currently low, as evidenced by the steep fall in shares of Adani group companies. Regaining the confidence of investors can be a difficult task. A lack of investor confidence could make any kind of fundraising, whether in the form of equity or debt, difficult for the Adani group to proceed. This may affect the group’s ability to roll over its debt and may even lead to a major crisis where it is unable to meet its debt obligations.
lenders like Credit Suisse has already stopped accepting bonds Adani companies as collateral for their loans. It is to be noted that the promoters of various companies belonging to the Adani group have pledged their shares to borrow money from banks and other institutions.
For example, in the case of Adani Power, 25% promoter shares have been pledged as collateral to the lenders. As the price of Adani’s shares falls, lenders will demand higher margins and become reluctant to lend any more money to the Adani Group due to the falling value of the collateral.
Many analysts warned about the risks involved in banks lending large sums against shares because when a company is unable to meet its debt obligations, its share price often falls.
The first tranche of payment (worth about $500 million) of the $4.5 billion loan taken by the Adani group during the acquisition of ACC and Ambuja Cements last year will come in March.
Given the current market conditions, the Adani Group is expected to use cash from within the company and other means to pay down or refinance debt, rather than tapping the bond market.
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Adani Enterprises decided on February 1 To close its ₹20,000 crore follow-on public offer And return the money that he collected from the investors.
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FPO is a process in which a company which is already publicly listed in the stock market issues additional shares to the investors.
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The fully subscribed FPO helped the Adani group save face and prevented a complete erosion of confidence in the group among investors. A failed FPO would have exposed the group’s inability to raise capital. However, the Adani Group has bigger problems than the beleaguered FPO.