The Adani Group stocks got smoked. It has been an excruciating fall. Billions of dollars of market cap got eroded in just two trading sessions. What led to this fall — short selling or this is more than short selling? It could be large institutional investors who have decided to sell the stock in the last two days. Tell us the inside story of what led to the stock fall.
I will answer the second part first. Have we seen the exit of any large shareholders? From the data that we have as of the week, the answer is no. A lot of large institutional investors are long-term strategic infra, intergenerational investors. They see the wealth creation in a utility platform over a generational period because all of our entities — public companies, nine we have now, are primarily into the core infrastructure that is required in India.
Those entities and their business have not changed independent of the share price movement. Therefore we do not expect it and neither has there been any movement in the long-term strategic investors and positions.
On the first part of the question – yes, we saw short-term volatility and the share prices have consequently changed but again because the fundamental business has not altered in any way, we believe that this volatility will pass. In a week’s time, our quarterly results will come out and people will see that the group continues on its upward trend and therefore we believe that over a period of time, it will be seen that we are a core infra utilities platform and therefore on a weekly basis, our cash flows do not alter.
So to give you an example here, every week on average, our portfolio makes about Rs 1,100 crore. This Sunday also, that number was achieved. Next Sunday it will be the same, the following Sunday it will be the same. We believe that it will become clear to investors that this short-term volatility will be addressed as we go through over the next few months.
The Hindenburg report has raised 88 concerns. I will talk about some of the big concerns. The leverage concerns about Adani Group have been discussed in the past as well. Let us take that forward. In the last four to five years, our debt has doubled but over a similar time, listed companies and the leverage ICR have improved. What about debt at promoter level?
As correctly highlighted, even in this report, I could not find anything with assets and performance of our businesses. So, they talk about promoter level debt. We hardly borrow on a corporate basis. At promoter level also, we do not borrow much. At a promoter level, we are net lenders to the market. Therefore, on a corporate basis also, we do not have much debt. On a promoter basis, as I explained, we are net lenders. So it is a completely unsubstantiated speculation that we have huge amounts of debt at promoter level.
We are one of the few groups that formally declare total pledge positions on a regular basis quarterly. It goes out as part of our credit report which goes to all investors or banking partners or shareholders, even independent directors. So the informed investor is very clear that we do not have this. This report to that extent is mere speculation on that point of debt.
On other aspects, we will discuss but as we go through this period, it has to be recognised and I would like to clarify for the public that for our large companies, say or Adani Port or or , their credit profile is similar to that of the government sovereign companies. We are the highest rated infrastructure portfolio in the country with the exception of the Government of India. This has to be seen in that context. We are very comfortable with this and we believe that it is a completely unsubstantiated rumour mongering though it affects us temporarily.
The report also talks about stock manipulation by Adani Group of companies through offshore shell companies and they have been specific there. How would you like to respond to that?
False.
The report is claiming that five FIIs that have invested in the Adani Group of companies are controlled by the Adani Group.
No, it is nothing to do. Our promoter shareholding is both for India and we hold some of our shares from overseas. In our Holcim transaction, when we issued an open offer document, the entire structure of our overseas holding was fully disclosed. Our domestic holding structure has been disclosed in public documents for investors for the past 12 years.
Therefore for anything beyond that, we are fully disclosed in our offering documents for investors, for regulators and for everybody. It is mere speculation and we cannot answer to speculation because this holding structure from family trust, intermediate companies and companies that hold shares domestically, be it Dubai to Mauritius, is fully disclosed in a comprehensive manner. Therefore they have made speculative charges that we control or do not control some company.
The report also is raising a serious concern that your financial numbers are inflated. There are inter-party transactions and as a result, the financial numbers are bloated. How would you clarify this because this is a serious charge?
They raised a specific question. We have addressed this in our rebuttal to that report. Now this is a specific question they asked. They said that in relation to Carmichael Rail and I am aware of this because this is part of AEL, we transferred an asset to a private company and then the private company immediately wrote down the value of their asset. So their implication is we over inflated Adani Enterprise revenue by writing off the asset in a private company. Now this charge is of malicious nature and that is my media statement because I knew this at that point in time also.
This is the malicious nature of this report which is borderline lying and it is certainly a misrepresentation. First, we actually disclosed these ourselves that this is a related party transaction. Then we disclosed fully how the transaction was done. Now if somebody claims to have done two years of research, they would have known that this asset when you are transferred, had its accounting treatment known in Adani Enterprise. They could have seen from the same note that in Adani Enterprise, we had already written down the value of the assets and charged it to the P&L as a loss. They knew this and yet they still published this question.
I am assuming they know this because they claim to have done two years of research. Now if they did not know this, then it is just purely ignorant and malicious. If they have knowingly done this, it is a case of genuine falsehoods and misrepresentation. So this is a clear example which we have highlighted and we have made public in our response, which is well over 400 pages fully annotated and we have attached the documents so people can verify themselves that 68 out of 88 are these types of questions they have asked.
The stocks of Adani Group of companies have fallen. Are there any margin challenges? What are you getting and if the stocks fall down more, could there be a margin gap which could create a snowball effect if the stocks go down?
We borrow very little at the promoter level and we declare it and therefore the coverage that we have in relation to that borrowing is we have cash to actually pay the borrowings full stop. Therefore it is completely baseless that there were margin costs. Before margin cost, we will just pay and borrow and completely retire the shareholder loss.
The Adani Group has decided to go ahead with the FPO of . What gives you the confidence that the issue will through?
The FPO is as you know is a three-part process and we deliberately selected the FPO because we wanted to make sure and achieve certain outcomes; broader institutional participation, broader analyst coverage and actually broader HNI and retail participation.
In the current situation or due to the volatility on Friday, the FPO price is below the retail target price. So we expect retail participation. We will wait to see how it goes but the long term investors see the value of the Adani Enterprise differently and they are fully committed for the FPO and we have no information that that has changed.
Therefore we are moving ahead because we believe that with our institutional and strategic investor base, the offer will anyway be fully subscribed. Now once and that is why we clarify….that the FPO is proceeding as normal and the reason the confidence comes is because of the way long-term investors look at AEL value. AEL value is not in the share price of AEL. It is just a holding value.
The real value of AEL is in incubating assets like Adani Airports, Adani Data Centre business, Adani new industry green hydrogen business, Adani Roads, Adani Digital Labs,
and mining services business. Those businesses are still performing as they are and they still have the same value. Now that value will be exercised when we demerge this business in the next four to six years.
So long-term strategic investors is what they are aiming for and that value has not changed because that is not representative of the AEL. The AEL share price is not representative of that value fully, it is a discounted value. So long-term investors are comfortable with the underlying value. Retail investors will see some pull back but even some ultra HNI and HNI will participate.
Okay, when the FPO document was initially shared in the public domain, Adani Group did indicate that one of the reasons why they want to go ahead with an FPO is because they wanted the retail participation in Adani Group of Companies to increase. Why should retail investors subscribe to the FPO because if the underlying price is much lower than the FPO price? Will not the entire purpose of increasing the retail shareholder base get defeated?
Correct. Our objective on the retail investor base is twofold; one, we want to spread out the share register which is our objective and which we expect to complete by 2025-2026. Now in the short term, naturally some change will happen because of the possible pullback of retail investors but it is very important for us to understand what we want to do for the retail investor.
We are in infra and being an asset-based company, it is very important that the Indian public owns its own assets. It would be good for the person going to Mumbai airport to own some shares because it is their asset, it is the assets of India. Indian public must participate and we want to encourage that participation. It is a bit of a disappointment that there will be some pullback, but in the longer term, we believe our objective to continue to encourage Indian retail investors will pay dividends and the wealth creation that Indian investors, retail investors should enjoy from Indian assets will occur. That is one of the key objectives of our founder and that the public should participate in the wealth creation of hard real assets in the country.
Let us talk about Ambuja and , your recent big acquisition. The Adani Group used the leverage route as it was a large acquisition. On Friday, the stock price of Ambuja cracked below the acquisition price. Is there a leverage/margin issue there?
Yes,
shares were never pledged and we had clarified at that time also that it was a representation based on the very technical definition that Sebi has; the shares are never pledged. The way the acquisition of that nature is accomplished is that we tell our bankers and debt capital providers that we will hold a minimum number of shares and not the value of shares.
So we are not sellers of our equity and we said we will own 63% odd of Ambuja shares which we own. So it is not a loan against shares, not pledged in any way. It is a security package which is different from pledge but that is counted in encumbrance by SEBI and that is why there was some misunderstanding and people misreported that as pledge.
Did you get any feelers from institutional investors that they want you to re-price the issue or are they fully committed to subscribe to the FPO at the original price?
It is not for us to give a discount. It is important for us that there is a value equation here and that is based on the sum of parts of real assets being developed. We very carefully evaluated the events of last week and the consensus feedback was that you please go ahead as planned and that is what we are doing.
Now what has happened to the stock price? We can argue that it has happened in the secondary market, it is sentiment, it is technical, it is compulsion in nature, but can I say that from a business standpoint, irrespective of what has happened to the stock price, the Adani Group will go ahead with its capex plans and there would be no alteration there? There are no debt obligations which could create challenges in the short term?
We are in a position where last week we made an EBITDA portfolio level of Rs 1,100 crore. Next week, it would be the same and the week after that, would be the same. We are a non-discretionary consumer spending portfolio. Therefore, underlying businesses are as they are – super high credit quality, massive cash flows and therefore underlying business even their growth trajectory is not impacted by this let alone anything else.