Gautam Adani is no longer Asia's richest person, as the selloff in his group's shares resumed with a vengeance on Wednesday. That's despite the successful close of India's largest-ever secondary stock sale, which inched over the line as the deadline for subscriptions closed at the end of Tuesday.
Other Indian tycoons bought shares in the US$2.45 billion stock sale in group flagship Adani Enterprises (NSE:ADANIENT), ensuring that all the shares sold despite scant demand from employees and retail investors. The secondary sale was at risk of foundering following an attack by short seller Hindenburg Research, which I explained has raised questions about the Adani Group's high levels of debt as well as transactions with shell companies controlled by Gautam Adani's brother Vinod.
The scandal is reaching the top levels of power today, with opposition politicians chanting "Adani, Adani," heckling Indian Finance Minister Nirmala Sitharaman as she delivered the nation's budget. Gautam Adani and his companies stand accused of overly tight ties with the government of Indian Prime Minister Narendra Modi, with the Adani companies the beneficiaries of numerous government contracts as well as investment by state-owned banks and insurers.
Gautam Adani suffered a one-day US$4.1 billion hit to his personal fortunes, reflected in today's real-time rich-list rankings by Forbes. It now tracks rival Indian tycoon Mukesh Ambani, the chairman of the conglomerate Reliance Industries (NSE:RELIANCE), as the wealthiest person in Asia, and No. 9 globally, his US$84.6 billion war chest just outdoing Adani at No. 10, with US$84.1 billion.
The Ambani family as well as Indian billionaires including the Bharti Enterprises founder Sunil Mittal, JSW Group chairman Sajjan Jindal, Torrent Group heir Sudhir Mehta and Zydus Lifesciences pharma billionaire Pankaj Patel bought shares in the Adani Enterprises secondary offering, according to the Business Standard. That saw it over the line.
Retail investors requested only 12% of the shares on offer to them, according to the company's filing with the Bombay Stock Exchange. Employees placed orders for 55% of the shares available to them. Mutual funds did not request shares.
There was little demand among rank-and-file investors because, at 2,180 rupees, Adani Enterprises shares are well below the offer range of 3,112 to 3,276 rupees per share. They are down a whopping 26.7% today, and now down by more than one-third from their closing price last Tuesday, just before Hindenburg Research published its report.
At the end of the second day of the offer, subscriptions equivalent to only 3% of the shares on sale had been placed. So it was the "non-institutional buyers" such as the tycoons and their family offices that pushed the share sale to full demand. They requested a massive 332% the number of shares they were allocated. Institutional investors bid just over the amount they could buy, at 126% of the allocation.
Adani Enterprises has offered the stock on a "buy now, pay later" sort of scheme known as partly-paid shares. Investors pay 50% of the shares they get now, and the balance in one or more tranches over the next 18 months, as decided by the company.
So institutional investors and tycoons appear to be treating the shares as something akin to options, betting Adani Enterprises will weather the Hindenburg storm and be higher than the offer price in 18 months. That gamble didn't appeal to retail punters.
And of course, there's the personal element at play. The Indian tycoons are coming to the aid of one of their own, in a country where a handful of wealthy families control most of the big industry. What's more, Gautam Adani has worked hard to culture connections in the Middle East, where brother Vinod is based, which paid off with a US$400 million investment from Abu Dhabi-based International Holding Co.
Hindenburg raised questions about transactions between shell companies based in Mauritius and other offshore destinations that it alleges have been used by Vinod Adani for "stock parking/stock manipulation" or to "engineer" Adani's accounting. That, Hindenburg maintains, helps explain the outrageous runup in Adani Enterprises shares. They bottomed at 128 rupees in March 2020, before rising 3,040% to 4,020 rupees in November.
Its backer International Holding Co. in Abu Dhabi has seen a similar, somewhat inexplicable rise. The company was an obscure entity running fish farms and a property business before seeing its market capitalization escalate north of US$240 billion, which is roughly the same size as drug maker Pfizer (PFE) or the drinks company PepsiCo (PEP) . It is the second-largest listed company in the Middle East, behind Saudi Aramco, the Saudi oil company.
The Abu Dhabi company's CEO says the growth has come because more than 40 companies were transferred into its holding company at nominal prices by another Abu Dhabi conglomerate, the Royal Group. But its assets have risen from US$215 million in 2018 to US$54 billion now, coinciding with the installation as company chairman of Sheikh Tahnoon bin Zayed al-Nahyan, the brother of Abu Dhabi's president. The sheikh also controls the Royal Group, which owns 62% of International Holding Co.
So the Adani secondary sale has the backing of the Abu Dhabi royal family. Gautam Adani is himself currently in the Middle East, meeting on Tuesday with Israeli Prime Minister Benjamin Netanyahu, as the Adani Group took over control of the port of Haifa. On Friday, he met with Egyptian President Abdel Fattah El-Sisi.
Gautam Adani describes himself as a "Proud Indian" and "Excited to be part of the Indian growth story!" on his Twitter feed. Adani Enterprises followed that theme by claiming Hindenburg Research wasn't just attacking the Adani Group but the very nation of India and its institutions, as I explained on Monday.
Adani Enterprises shares suffered a late-day plunge on Wednesday, doubling the size of their losses. The successful close of the secondary offering helped lift the price of Adani Group corporate bonds since some of the proceeds will be used to pay down debt. But the sale did not achieve another stated goal, of diversifying and broadening the company's shareholder base.
Indian stocks in the form of the Sensex were up 0.5% in late-afternoon trade on Wednesday. But all other Adani Group companies moved also lower on Wednesday, after some stabilized earlier this week.
Fresh off the Haifa port deal, Adani Ports and Special Economic Zone (NSE:ADANIPORTS) was down 19.4%. Affiliate Ambuja Cements (NSE:AMBUJACEM) was down 18.5%, while natural-gas distributor Adani Total Gas (NSE:ATGL) was down its 10.0% trading limit.
Adani Green Energy (NSE:ADANIGREEN) was down 5.5%, and electric utility Adani Transmission (NSE:ADANITRANS) was showing a similar loss before a late rally that left it little changed. Foodstuffs manufacturer Adani Wilmar (NSE:AWL) and thermal-power producer Adani Power (NSE:ADANIPOWER) were both down another 5.0% today.
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