Mumbai January 26 2023: The $2.5 billion share sale by Adani Enterprises Ltd., India’s biggest ever primary follow-on public offering, is largely expected to go through despite the furore over a short-seller report, market watchers say.
Strong demand from anchor investors and a discounted price for retail investors work in favor of the offering by Indian billionaire Gautam Adani’s flagship, they say. That’s even as the group’s stocks took a beating on Wednesday after US-based Hindenburg Research said it has taken a short position in certain securities of the conglomerate alleging financial improprieties.
The allegations would likely have “little impact” on the follow-on sale “as the anchor book was already oversubscribed,” Leonard Law, a senior credit analyst at Lucror Analytics, wrote in a note on independent research platform Smartkarma. “The allegations will lead to some near-term reputational damage, though the longer-term impact could be minor.”
Hindenburg’s Jan. 24 report came as individuals and funds, who have until next week to join the share sale, were busy assessing valuations and the company’s prospects after a 2,500% surge in Adani Enterprises’ stock over five years. That rally trumped even the likes of Elon Musk’s Tesla Inc., and along with gains in other group shares made Adani Asia’s richest man.
“I do not expect any changes to the offer parameters,” said Travis Lundy, a pan-Asia analyst at Quiddity Advisors. “The anchor book got priced at top end of the range, while there are basically only two more days of trading and then retail gets shares at a discount to the book anyway.”
The Adani Group is “evaluating the relevant provisions under US and Indian laws for remedial and punitive action against Hindenburg Research,” it said in a statement on Thursday, when India’s stock market was shut for a holiday. Hindenburg isn’t the first research firm to raise concerns around Adani Group. CreditSights, a Fitch Group unit, said in an August report that the conglomerate is “deeply overleveraged” with “stretched balance sheets.”
Investors including Abu Dhabi Investment Authority and state-controlled insurer Life Insurance Corp. of India are among anchors that bid for the stock in the additional share sale. The book for that category of investors was oversubscribed by 1.8 to 2 times, according to people familiar with the matter.
Bloomberg News reported earlier that large investors would get a concession of 10% on the current market price while retail investors would pay even less to buy into the company. Bids for smaller potential investors run Jan. 27-31.
‘Missile Launched’
Several market participants have pointed to the timing of the short seller’s report, coming as it did ahead of the share sale.
“It’s a missile launched with a perfect timing and motive,” said Deven Choksey, managing director at KRChoksey Holdings. “The report in circulation has nothing new to talk about and all such claims made in the report are proven wrong as many times in past. Unless, some meaningful outcome is found, I would say, investors should ignore the noise and focus should be on investments.”
Brian Freitas, an equities analyst who publishes on the platform Smartkarma, said the report may deter some funds, particularly those where their stake could be more than 1% of Adani Enterprises’ equity. “There was strong interest on the anchor book though that was likely before the report became public,” he added.
International Holding Co., an investment firm which itself is up by almost 28,000% over the past five years, is among those bidding to buy stock in the sale, according to people familiar with the matter. Roughly half the funds raised will go toward expanding Adani’s airport and renewable energy projects, while some 42 billion rupees ($515 million) will be used to pare debt, Adani Enterprises said in its prospectus.
Investors will be keenly watching Adani stocks for further impact when Indian markets resume trading on Friday.
“All the Adani Group shares are high-beta stocks. Their valuations always look stretched,” said Kranthi Bathini, chief market strategist at WealthMills Securities in Mumbai. “The timing of the Hindenburg report is contentious and raises doubts. I don’t think there will be a big negative impact from the report on the group’s stocks.”
