Adani Group, recently faced a recall of its initial public offering (FPO). This came as a surprise to many as the FPO had received an overwhelming response from investors. Despite being oversubscribed by more than 50 times, the recall was announced due to certain technical issues, which isn't the real reason.
The FPO, which was launched on January 18, 2023, aimed to raise Rs. 6,000 crore through a fresh issue of shares and an offer for sale by the promoter group. The issue price was fixed at Rs. 135 per share and was open for subscription till January 20, 2023. However, on January 19, 2023, APSEZ announced the recall of the FPO due to certain technical issues with the bid processing system of the stock exchanges. The company stated that it would re-launch the FPO after resolving the issues and would inform the public about the new dates for subscription.
So what is the real reason behind the recall of FPO?
The Adani Group's recent decision to cancel their FPO was a bold move, facing the trials of a rapidly changing market. Despite the initial loss of 70 billion USD in the past week, the cancellation of the FPO was a necessary step to prevent a far greater loss. With the FPO priced at 3112 and the market price at 2179, proceeding with the FPO would have resulted in a devastating 30% loss for investors. The potential crash of the stock due to large investor sell-offs was a looming threat, but the Adani Group made the difficult choice to protect their market cap. The consequences of this decision are becoming clear, with Credit Suisse no longer accepting bonds from the Adani Group, and a 26.7% crash in stock value yesterday, marking one of its biggest one-day falls.
Is this the end of Adani Group?
Hindenburg Research's damning report on the Adani Group has affected Gautam Adani's personal wealth as well. The Indian business tycoon saw his wealth decline by $34.6 billion since the report was published. This sharp downturn in fortune has pushed him out of the elite club of the world's top 10 richest billionaires. Adani is now placed 11th in the Bloomberg Billionaires Index.
The Adani Group is a conglomerate with a diverse range of businesses, including ports, logistics, agribusiness, real estate, and renewable energy. It is one of India's largest and most successful companies, with a significant presence in the country and around the world. The true motivation behind the recall of the FPO is not technical problems with the stock exchange's bid processing system, but rather the fact that the stock price was already down on the day subscribers booked the FPO. Had they gone ahead with the offering, investors would have faced a staggering loss of 30% or more and the market could have faced a disastrous crash.
Promoters of Adani Group's various subsidiaries have pledged significant portions of their equity, leaving the group in a precarious position. Adani Power, with 25.01% of promoter stake pledged, stands at a value of Rs 18,882 crore. Similarly, in Adani Ports & SEZ, 17.31% of ownership has been pledged, valued at Rs 17,371 crore. The situation is no different for ACC, with 11.72% pledged promoter stake worth Rs 2,702 crore. Adani Transmission and Adani Enterprises have 6.62% and 2.66% pledged equity stakes, valued at Rs 13,785 crore and Rs 7,497 crore, respectively. Adani Green Energy's pledged promoter stake of 4.36% is worth Rs 12,818 crore.
The danger lies in the fact that if the stocks fall below a lower threshold set by debtors, they may all sell the shares, leading to a downward spiral. With stocks already down 50%, the risk is high. This could result in a further crash in the stock's value and loss of promoter stakes, marking the worst-case scenario.
It is important to note that Indian banks have a significant exposure to Adani Group companies and LIC holds 0.975% of its total assets under management in Adani stocks. As financial analysts, it's crucial to weigh the risks and rewards before investing in Adani Group.
Is this the end of Adani Emperor? The answer is BIG NO, the recall of the Adani Port and Special Economic Zone Limited's (APSEZ) initial public offering (FPO) is not the end of the Adani Group. However, there are several underlying problems with Adani's financials that require closer examination.
Additionally, it is crucial to delve into the underlying financial health of the company to assess its stability and future potential for growth. By examining key financial indicators such as revenue, earnings, and debt-to-equity ratios, we can gain a deeper understanding of the company's financial position and make informed investment decisions. Furthermore, it's essential to keep a close eye on regulatory developments and market trends that could impact the company's performance.
In conclusion, the Adani Group's recent decision to cancel their FPO has been met with mixed reactions in the market. Although the company faced a 70 billion USD loss in the past week, they took a necessary step to prevent a far greater loss. With a 26.7% crash in stock value and Credit Suisse no longer accepting bonds from the group, it's clear that the decision had consequences. The high amount of promoter stakes pledged by various Adani subsidiaries, combined with a 50% decrease in stocks, puts the group in a high-risk position. Should the stocks fall below the lower threshold set by debtors, there is a possibility of a downward spiral, resulting in a further crash in stock value and loss of promoter stakes. Before investing in Adani Group, it's crucial to weigh the risks and rewards carefully, considering the large exposure of Indian banks and LIC's AUM in Adani stocks.