L'affaire Hindenburg: Adani Group needs a course correction
The perception war is going to continue, and the Adani Group's FPO success certainly does not bring curtains down on it, says Prakash Chawla
It was a 'Make or Break' fundraising gambit for the Adani group. Billionaire Gautam Adani pulled off his Rs 20,000 crore Follow-on Public Offering (FPO) in the last hours, courtesy of non-institutional investors (NIIs).
It was a gambit, for days before the multi-crore FPO, a bombshell from the US-based short-seller firm Hindenburg Research landed right over the Adani Group. The firm accused Adani Group of manipulating the valuations of listed entities to sky-high, thus exposing its lenders, including the Indian public sector banks and Life Insurance Corporation of India, to risk.
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In a battle mostly fought so far in the media, more gruesomely over social media, the Adanis have denied the accusations. On the other hand, Hindenburg, which has its own global following amongst the investing community, stood its ground. Apart from LIC and the State Bank of India, which sought to allay fears of any undue risks associated with a clutch of Adani companies, no regulatory intervention has been forthcoming so far.
So, Gautam Adani, perhaps facing one of the most difficult challenges of his career, could pull off the FPO in the midst of a high-decibel perception war unleashed by Hindenburg, which boasts of grounding several high-profile and high-value names in the past.
Nevertheless, the perception war is going to continue, and the Adani Group's FPO success certainly does not bring curtains down on it. In the financial markets, perception matters, sometimes more than reality, and it takes a lot of course correction to rebuild trust with the investors.
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The question then arises, if Adani had lost the investors' trust, why would the FPO come out as a winner? The answer lies in the non-institutional investors somehow coming to the Adani rescue in the last hours of the closing of the FPO.
Retail investors and employees were mainly missing in support of the Adani fund-raising mega plan. As per initial reports, the subscriptions by different categories of investors were as follows: NIIs 3.26 times, retail 0.11 times, employees 0.51 times and Qualified Institutional Investors 0.97 times. The last three categories of investors who did not support the public offering are quite important and the Adanis need to build or rather rebuild bridges with them-Hindenburg or no Hindenburg!
Without standing in judgement of the accusations, Adani could not have commanded the kind of crazy valuations of their listed companies without the support of these investing communities.
Otherwise, how does one explain the following: Tata Steel, the blue-chip of the Tatas, commands a Price to Earn multiple (P/E) of 5.09, whereas Adani Enterprises enjoys a whopping P/E of 270 times even after the recent massive correction. Simply put, investors were willing to bet only five times the earnings of Tata Steel, whereas they were ready to go blindly supporting Adani Enterprises by 270 earning multiples.
This kind of investor backing is out of the ordinary and would have got a jolt post-l'affaire Hindenburg. It is also a wake-up call for the Indian regulator, SEBI, to stay alert about some crazy valuations which some of the corporates enjoy, as also the lenders who, at times, are overwhelmed by larger than life persona of the promoters of such groups!
The author is a New Delhi-based independent economic analyst and journalist.
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