There was more bad news for India’s embattled Adani Group on Friday, with sources saying the market regulator is probing Adani Group’s links to investors in its aborted $2.5-billion share sale.
The Securities and Exchange Board of India (SEBI) is looking into whether the group violated Indian securities laws or had a conflict of interest in the share sale process, two sources said.
The watchdog is investigating relationships between Adani and at least two Mauritius-based firms – Great International Tusker Fund and Ayushmat Ltd – which participated as anchor investors, among others, said the sources, who spoke on the condition of anonymity due to the confidential nature of the probe.
Under India’s capital and disclosure requirement rules, any entity related to a company’s founder or the founder group is ineligible to apply under the anchor investor category. One of the sources said the focus of the probe would be whether any of the anchor investors are “connected” to the founder group.
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Also under the SEBI scanner are Elara Capital and Monarch Networth Capital, two of the 10 investment banks that managed the share offering, the sources said, adding that SEBI had approached the two firms last week.
Forbes said in a report on February 1 that Elara Capital (India) Private Ltd, a subsidiary of London-based investment firm Elara Capital, and Monarch Networth Capital, an Indian brokerage, were two of the 10 underwriters named by Adani Enterprises in its offer agreement for the sale.
It noted that Hindenburg documented alleged links between Elara Capital and Monarch Networth to Adani entities, and said: “The involvement of Elara Capital and Monarch Networth Capital, however, raises questions about whether any of Adani’s personal funds were deployed to help meet the $2.5 billion target.”
The Adani Group denied any connection to Elara Capital funds in its 413-page rebuttal of the Hindenburg report, and said it teamed up with Monarch because of their capacity to tap into retail markets.
The roles of Elara and Monarch are being examined by the market watchdog to rule out “any conflict” in the share offering process, one of the sources said.
Hindenburg has alleged that a Mauritius-based fund of Elara has invested 99% of its market value in three Adani stocks.
On Elara, Adani has said “innuendoes” that the firm was in any manner related to the conglomerate founders were incorrect.
When contacted, Monarch referred to an exchange disclosure on February 3 that said an Adani entity held “an insignificant”, 0.03%, stake in the company since 2016. Reuters was unable to confirm this from public records. Elara did not respond to a request for comment on the regulator’s probe and Hindenburg’s allegations.
The federal corporate affairs ministry, responsible for regulating Indian businesses, has briefed officials in Modi’s office and been in touch with SEBI, the market regulator, one of the officials said.
MSCI cuts weighting of Adani firms
Meanwhile, MSCI has said it will cut the weighting of Adani Enterprises and three other Adani firms in its indexes from next month.
The New York-based index provider said it reassessed the size of companies’ free floats and determined that there was “sufficient uncertainty” surrounding some investors in Adani companies.
It said the review – the latest blow to the Indian conglomerate following a damning report by Hindenburg Research – was spurred by feedback from market participants.
The Hindenburg report, launched on January 24, accused the Adani group of stock manipulation and improper use of offshore tax havens that obscure the extent of stock ownership of Adani family members in group firms.
The conglomerate, which has denied any wrongdoing, has since been pummelled by a stock rout that has wiped some $110 billion off the value of its main seven listed firms.
In addition to the group’s flagship firm Adani Enterprises, MSCI said it plans to cut the weightings for Adani Total Gas – a venture with France’s TotalEnergies and Adani Transmission, a power transmission company.
It will also reduce the weighting of ACC, a major Indian cement company acquired from Switzerland’s Holcim last year and which is not one of the Adani group’s main seven listed firms.
Loss of confidence may hurt Indian markets
Hindenburg founder Nathan Anderson has said MSCI’s review was “validation of our findings”. Adani Group did not respond to a request for comment on Friday.
The four companies had a combined 0.4% weighting in the MSCI emerging markets index as of January 30. The changes come into effect on March 1.
“The lower free float will require passive investors to sell stock to reduce their tracking error with the index,” said Brian Freitas, a Periscope Analytics analyst who publishes on Smartkarma.
He estimated there would be around $570 million to sell by passive funds across Adani Enterprises, Adani Total Gas and Adani Transmission on February 28.
The stock rout has heightened worries that the loss of confidence in the group led by billionaire Gautam Adani could evolve into loss of confidence in Indian businesses generally.
There have been protests in parliament, with lawmakers demanding an investigation. Adani Enterprises, a coal mining firm and the group’s incubator for new projects, was also forced to shelve a $2.5-billion stock offering.
Shares in Adani Enterprises were flat on Friday after having plunged 11% on Thursday when MSCI flagged the changes. Adani Transmission and Adani Total Gas slid 5% on Friday, while ACC was down 1%.
- Reuters with additional editing by Jim Pollard
NOTE: The headline and content of this report was updated on February 10, 2023 to add details about the market regulator probing Adani’s share sale.
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