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.

 

---

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