Adani's FPO Fallout: A Missed Opportunity or a Strategic Move?

Adani Enterprises has canceled its Rs 20,000 crore follow-on public offer (FPO), the company said in a regulatory filing late on Wednesday (February 1) evening. The company will refund proceeds it had received as part of its FPO, which was bailed out largely by corporates and foreign investors on Tuesday.

The extraordinary development has come amid a massive market rout in Adani Group stocks following the release of the Hindenburg Research report that accused the group of “brazen stock manipulation and accounting fraud

Despite the AEL share’s market price quoting below the issue price, the FPO was subscribed 1.12 times on the last day of the issue following a strong response from qualified institutional buyers (QIBs), including foreign institutional investors (FIIs) and non-institutional investors (NIIs) such as family offices of big industrialists that manage their personal wealth and ultra-high net worth individuals

However, the retail investors’ portion was subscribed only 0.12 times (12 percent) with investors bidding for only 27.45 lakh shares as against the quota of 2.29 crore shares. The employees’ quota also remained undersubscribed with only 55 percent of the quota getting bids.

On Wednesday, the share price of Adani Enterprises nosedived more than 34 percent to hit a day’s low of Rs 1,942 against a previous close of Rs 2,975, just shy of its lower circuit of Rs 1,933.75. The stock eventually settled 28.45 percent lower at Rs 2,128.70.

Around noon India time on Wednesday, Bloomberg reported that Credit Suisse Group AG has stopped accepting bonds of the Adani Group companies as collateral for margin loans to its private banking clients.

You may have heard about the recent stock market turmoil, which is centered around the Adani Group. In case you're not aware of the situation, here's a breakdown: The Adani Group experienced a major shock following the release of the Hindenburg report. Unfortunately, this has been bad news for Adani investors, as they saw their investments plummet rapidly. This may also come as a surprise to Gautam Adani, who likely did not anticipate such a tumultuous start to 2023.

Adding to the situation, a Public Interest Litigation (PIL) has been filed in the Supreme Court against the US-based short-selling firm Hindenburg for publishing a report that raised concerns about the conglomerate's debt levels and use of tax havens. It is clear that this will not end well for either party and the topic will continue to be in the news.

You now have an idea of the conflict between these two giants, but do you know who Hindenburg is and why Adani's stock has dipped? Let's dive into these questions one by one.

Hindenburg revealed its short positions in Adani corporations through derivatives traded outside India and bonds listed in the US. Along with this disclosure, it released a report claiming the inappropriate use of tax havens and expressing concern about the debt levels.