Adani Group called off flagship company’s FPO

What’s in today’s article?

• Why in news?
• What is a follow-on public offer (FPO)?
• Adani Saga

Why in news?

• Adani Group called off the Rs 20,000 crore follow-on public offering (FPO) of its flagship firm, just a day after it was fully subscribed.
  • The company came out with a statement, saying that its board decided not to proceed further with the public offer (FPO) in the interest of its subscribers.

What is a follow-on public offer (FPO)?

• An FPO is a process wherein a company that is already publicly listed in the stock market issues additional shares to investors. 
  • It is similar to an initial public offering (IPO), except that in IPO the issuance or sale of shares is done for the first time.
• During an FPO, a company could decide to issue fresh shares to investors, or existing shareholders in the company could decide to sell their shares to other investors.
• Companies can float an FPO to raise equity capital for various reasons such as to pay off debt or to improve their capital structure.
• FPOs can also be a way for existing shareholders to sell their shares and exit the company.

Adani Saga

• Hindenburg report on Adani group
  • Recently, New York-based investor research firm Hindenburg Research accused industrialist Gautam Adani-led conglomerate of brazen stock manipulation and accounting fraud scheme over the course of decades.
    • The report claimed that the Adani Group were pulling the largest con in corporate history. 
  • It said that key listed Adani companies have taken on substantial debt, including pledging shares of their inflated stocks for loans.
  • It also said that seven Adani listed companies have an 85% downside on a fundamental basis due to what it called “sky-high valuations”.
• Impact of this report
  • Impact on the Adani Group
    • Seven listed companies in the Adani Group lost billions of dollars in market capitalisation since the release of the Hindenburg report.
    • The listed Adani firms now have a combined market value of USD 108 billion, versus USD 218 billion before Hindenburg’s report.
    • It also wiped off billions of the personal net worth of Adani and relegated him to 22nd spot in the Forbes Real-time billionaire list for 2023.
  • Systemic risk
    • No Adani Group company has ever defaulted on their debt repayments so far. 
    • Moreover, the bank debt component in the total debt of the Adani group has only fallen (from 86% in FY16 to less than 40% in FY22).
      • This means any potential issue in the repayment is less likely to have any impact on the banking system.
    • However, it should be noted that liberal investments were made by state entities like LIC, SBI and other public sector banks in the Adani Group.
    •  Since, share prices have fallen, these entities may have exposed the county’s financial system to heavy risks.
  • Questions corporate governance practices in India
    • The current report may reinforce distrust around corporate governance practices in India Inc.
      • If one of India’s largest companies is facing this crisis of governance, people may become suspicious and raise questions.
  • Highlights relationship between India’s business and political elite
    • Critics point out that the saga has shone a light on the relationship between India’s business and political elite.
    • In this context, they question whether India, faced with accusations of crony capitalism, can become a global economic juggernaut like its nearest Asian competitor, China.
  • Worries in India’s neighbourhood
    • Adani group is involved in infrastructure development in India’s neighbourhood including Bangladesh, Sri Lanka, Nepal and Myanmar.
    • However, with the group’s slide in fortunes, governments in neighbouring countries are worried about the ability of the group to execute these big-ticket infrastructure projects.
    • Hence, the current saga has potential to malign India’s image in the neighbourhood.

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Q1) What is Hindenburg Research?

Hindenburg Research is a US-based research team that offers services in forensic financial research, with a focus on equity, credit and derivatives analysis. 

Their fundamental research often includes studying and reporting on companies with accounting irregularities, unethical practices in business/related-party transactions, bad management etc. 

Q2) What is Initial Public Offer (IPO)?

IPO can be defined as the process in which a private company or corporation can become public by selling a portion of its stake to the investors.

IPO is the first time a company raises equity capital through means of public offering. Once the IPO is done, the shares of the firm are listed and can be traded freely in the open market.

Source: Explained | What made the Adani Group call off its FPO?  |  Time  |  The Hindu  |  India Express