The Board of Adani Enterprises Ltd., (AEL) after a meeting late on Wednesday night decided to withdraw the company’s Rs 20,000 crore follow-on public offering (FPO) citing protection of investor interests. The company is working on returning investor funds lying in an escrow account. Almost half of the Rs 20,000 crore will be returned.
“The Board of Adani Enterprises Ltd., (AEL) decided not to go-ahead with the fully subscribed Follow-on Public Offer (FPO)," the company said in an announcement to the stock exchanges. “ Given the unprecedented situation and the current market volatility the Company aims to protect the interest of its investing community by returning the FPO proceeds and withdraws the completed transaction.”
“The subscription for the FPO closed successfully yesterday," said Gautam Adani, Chairman, Adani Enterprises. "Despite the volatility in the stock over the last week, your (investors) faith and belief in the Company, its business and its management has been extremely reassuring and humbling..... However, today the market has been unprecedented, and our stock price has fluctuated over the course of the day. Given these extraordinary circumstances, the Company’s board felt that going ahead with the issue will not be morally correct.”
The company’s withdrawal comes on a day the Adani Enterprises lost almost 30% in share price, causing a huge blow to institutional investors and family offices who rescued the offer on the last day.
“Anchor and HNI investors, who’ve pumped most of the money into the FPO, have hell to pay for, taking a 30% haircut from Day 1 after the offer closed,” a senior banker affiliated to a foreign bank, said.
“The only way to salvage the situation was by calling off the FPO.”
A senior fund manager termed the withdrawal a “disaster” indicating that the investors in the offering had become “uncomfortable” after the steep price fall. It could also impact the capital raising ability of the group, going forward.
However, group founder Adani added, " This decision will not have any impact on our existing operations and future plans. We will continue to focus on long term value creation and growth will be managed by internal accruals. Once the market stabilizes, we will review our capital market strategy.”
He added that the company was working with the Book Running Lead Managers (BRLMs) to refund the proceeds “received by us in escrow and to also release the amounts blocked in your bank accounts for subscription to this issue. Our balance sheet is very healthy with strong cashflows and secure assets, and we have an impeccable track record of servicing our debt. ”
Another fund manager said that the withdrawal could result in stemming the price fall in group companies “for now” as also in banks that had exposure to the group. However, he did not rule a “kneejerk” reaction when markets open on Thursday.
A day after the Adani Enterprises FPO was rescued by institutional investor and HNI family office backing, investors dumped frontline group stocks on reports of a Swiss bank refusing to accept Adani Group bonds as collateral for margin loans in light of Hindenburg Research’s allegations of corporate fraud, which the group has contested.
Stocks like Adani Ports, which hit a 52-week low of Rs 459.50, Adani Enterprises, Ambuja Cements, ACC and Adani Total Gas plumbed, erasing a combined Rs 1.84 trn worth of investor wealth in group stocks on Wednesday. The damage over the past five days to the Group’s market cap has been to the tune of Rs 7.56 trn and after Wednesday’s rout cost founder Gautam Adani ceding the richest Indian title to RIL chairman Mukesh Ambani.
Adani slipped to the 15th richest person on the Forbes Billionnaire having seen his networth erode by $14 bn to $74.7bn, led by Adani Enterprises plunging 28.2% to Rs 2135.35 apiece, Adani Ports by a whopping 19.18% to Rs 495.15, Ambuja Cements by 16.72% to Rs 334.10, ACC by 6.19% at Rs 1846.45 and Adani Total Gas by 10% to Rs 1897.40.
The extent of participation in these stocks was borne out by Adani Enterprises being the top traded stock on NSE at Rs 3436 crore, followed by Ambuja Cements and Adani Ports being the third- and fourth most traded stocks by value at Rs 2775 crore and Rs 2536 crore each.
The rout in the frontline Adani stocks had a cascading effect on PSU bank stocks like SBI, Bank of Baroda and PNB which slipped 5 -8%.
The outlook for the Group stocks remained gloomy even after Wednesday’s rout.
"The investors in Adani Ports, Adani Enterprises, ACC and Ambuja Cements are concerned about the fallout from the Hindenburg report, which has resulted in their rushing for exit all at once,” said one of the fund managers cited above. “The buyers don’t seem to be in a hurry to pick these stocks yet on expectations they can get them at lower value.”
Unlike stocks traded only on the cash market, those traded on both cash and derivatives segments – Adani Ports, Adani Enterprises, ACC and Ambuja Cements -- don’t have any price band, which means their prices can swing more wildly.
After a 10% rise or fall, there is a cooling off period after which the price trading range opens by 5% each either side. A 15% move is followed by another cooling off period and then a 5% range opens again.
Against these price band of Adani Total, Adani Green and Adani Transmission is set at 10% which is the maximum limit they can rise or fall to in a trading session.
The promoter pledge in stocks such as Adani Ports stands at 19.25%, after a further 3.25% was pledged on January 27 and January 31.
The increase in shorting increased to the extent that Ambuja Cements futures and options contracts remain banned for trading in the F&O segment as it has crossed an exchange threshold in terms of number of outstanding shares being held by clients.
Adani Ports has also seen a huge build up in outstanding F&O positions, with clients holding 82% of marketwide position limit, or 12.37 crore shares out of 15 crore shares.
