Adani’s share sale U-turn spares only some blushes

Inauguration ceremony after the Adani Group completed the purchase of Haifa Port
Indian billionaire Gautam Adani speaks during an inauguration ceremony after the Adani Group completed the purchase of Haifa Port in Haifa port, Israel January 31, 2023. REUTERS/Amir Cohen/File Photo

HONG KONG, Feb 2 (Reuters Breakingviews) - Markets have given Gautam Adani a big bloody nose, and his backers a partial reprieve. The tycoon’s decision on Wednesday to pull the $2.4 billion share sale at his flagship Adani Enterprises (ADEL.NS) was all but forced after a 28% plunge in the company’s share price the day after it closed the books. Cancelling the deal is marginally better than stuffing above-market-price stock down investors’ throats. The U-turn is nonetheless a key sign the support for the Indian industrialist has a limit.

His global backers were in a tight spot after signing up to buy stock. The Abu Dhabi Investment Authority, a sovereign wealth fund, popped up as an anchor investor on the deal before the shares were dragged down by Hindenburg Research’s short-selling attack accusing it of fraud and stock manipulation, allegations which Adani dismisses. Sure, ADIA only stumped up around $20 million, but as a well-respected investor, any backing for a group largely shunned by big established Indian institutions was surprising.

Abu Dhabi conglomerate International Holding Company (IHC.AD) committed to buy 16% of the total deal, even after the shares were falling as part of a wider $90 billion rout across the seven core Adani group companies. That underscores the strategic nature of its relationship with its Indian peer it has previously ploughed billions into. The collective mess threatened to embarrass the United Arab Emirates, as well as Indian state entities that were buying, including Life Insurance Corporation (LIFI.NS).

The nixed deal will also come as a relief for Adani’s advisers, particularly Wall Street investment bank Jefferies (JEF.N), the only non-Indian on the mandate. Cancelling the share sale spares it, and others including ICICI Bank (ICBK.NS) and Axis Bank (AXBK.NS), from any potential liability exposure that might have arisen from closing a deal without doing due diligence on the issues Hindenburg raised, a risk noted by hedge fund boss Bill Ackman. That danger was magnified on Wednesday with India’s regulator looking into possible irregularities around the share sale, Reuters reported exclusively citing a source with direct knowledge of the matter.

Adani can get by without the proceeds. Less than one quarter was due to pay down borrowings at the issuer and its unlisted subsidiaries, including Adani Airport and Adani Road. More than half of the money was to fund capital expenditure including in green hydrogen and airport facility improvements. Now, though, funding markets are starting to close to the man who was briefly the world’s third richest. It signals that support for Adani from his big backers has a limit, and that the controversy has room to run.

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Adani Enterprises on Feb. 1 said it is withdrawing its $2.4 billion share sale due to the “unprecedented situation and the current market volatility”. The deal had already been fully subscribed.

The company’s shares fell 28% to 2,135 rupees each on the same day before the announcement. The bottom of the previously guided price range for the offering was 3,112 rupees.

Investors had bid for 1.12 times the shares on offer. Large non-institutional investors submitted bids for almost five times the shares offered or reserved to them, while employees bid for 0.55 times and individual retail investors for 0.12 times. International Holding Company, the Abu Dhabi conglomerate, had said that it would be investing 1.4 billion dirhams, over $380 million, to subscribe to 16% of the issue.

Editing by Antony Currie and Thomas Shum

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