Financial Distress for Adani: Bonds Sink and FPO Pulled Amid Controversy
Adani Enterprises Ltd’s board decided to scrap its ₹20,000 crore follow-on public offering (FPO), due to investor protection concerns, as the sell-off in Adani shares continued for a fifth day after the Hindenburg report was released alleging Adani enterprises of accounting fraud and stock manipulation. The move caused a significant drop in the Adani IPO share price.
In an announcement to stock exchanges on Wednesday, Adani Enterprises said, “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 withdrawing the completed transaction.“
On a day when the shares of Adani Enterprises saw a sharp decline of nearly 29%, the company’s decision to withdraw dealt a significant blow to both institutional investors and family offices who had saved the offer on the final day.
The sell-off in Adani shares resulted in a drop in the Adani Enterprises share price and caused a combined loss of ₹1.84 trillion in investor wealth for the group’s stocks. Over the past five days, the market cap of the Adani group has decreased by ₹7.56 trillion, leading to founder Gautam Adani losing his title as India’s richest person to Mukesh Ambani.
The FPO ended on Tuesday. In the words of Gautam Adani, chairman of Adani Enterprises, “Despite the volatility in the stock over the last week, your 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.“
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Experts’ Opinions on FPO Withdrawal
A senior banker says, “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. The only way to salvage the situation was by calling off the FPO.“
A prominent fund manager referred to the withdrawal as a “disaster,” suggesting that investors in the offering had grown “uncomfortable” following the substantial drop in the stock price. This could also have implications for the group’s ability to raise capital.
How Has The Setback Affected The Stocks & Valuations of Adani Enterprises?
Adani’s net worth fell by $14 billion to $74.7 billion, causing him to drop to 15th on Forbes’ Billionaires list. Adani Ports experienced a 19.2% drop to ₹495.15, Ambuja Cements declined by 16.7% to ₹334.10, ACC fell by 6.19% to ₹1,846.45, and Adani Total Gas dropped by 10% to ₹1,897.40.
Stocks traded on both cash and derivatives segments, such as Adani Ports, Adani Enterprises, ACC, and Ambuja Cements, are subject to more volatility as they do not have any price circuits in place. The promoter pledge in Adani Ports has increased to 19.25% after an additional 3.25% was pledged on January 27th and 31st. The recent increase in shorting has led to a ban on Ambuja Cements F&O contracts for trading in the derivatives segment, as the number of outstanding shares held by clients has crossed the exchange threshold. The Hindenburg report and its allegations of corporate fraud have caused a significant drop in the Adani IPO share price.
Here’s What The Founder Has To Say About The Future Plans for Adani Enterprises
Despite the recent setback, Adani’s founder Gautam Adani reassured that the cancellation of the offering would have no impact on their current operations and future plans. The company is focused on creating long-term value and plans to finance growth through internal accruals. Once the market stabilizes, they will reevaluate their capital market strategy.
Adani stated that their balance sheet is in good health with strong cash flows and secure assets, and they have a solid history of paying off their debt obligations. The company is also working with investment bankers to return the share subscription funds to investors. Let’s see what more Adani’s fortune has in store for the investors!