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May 10, 2023, 11:24 PM - Updated on May 11, 2023, 9:30 AM
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(Bloomberg) --Less than four months after allegations of fraud by a short seller tipped his business empire into crisis, billionaire Gautam Adani is considering tapping equity markets in a major test of investor confidence.
Adani Enterprises Ltd., the Indian tycoon’s flagship, and at least two other group companies plan to hold board meetings on May 13 to consider raising funds via sale of shares or other securities. They didn’t disclose how much money they intend to raise or who they’re working with on a potential deal or deals. Shares of all 10 group firms edged higher in early Mumbai trading on Thursday, with the flagship’s stock climbing more than 4%.
While the Adani family raised about $1.9 billion selling shares in four firms to US investment firm GQG Partners in early March, none of the group’s main units have tapped the public equity market since the allegations by Hindenburg Research wiped more than $100 billion from the conglomerate’s value. Shares have recouped some of their losses since February, though Adani Enterprises still trades at about half its peak level in 2022.
“The company appears to need the cash now - or they would not be launching an offering before people have forgotten about the Hindenburg report,” said Brian Freitas, an independent equities analyst who publishes on Smartkarma. The discount to Adani Enterprises’s current share price “would have to be in the 10%-15% range for investors to take a look at it, though it also depends on the offer size,” he added.
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A successful share sale would go a long way toward cementing Adani’s recovery from the crisis, though much would depend on the terms of the deal and which investors participate. The latest plans come as Indian stocks broadly are staging an impressive rebound this quarter. The benchmark NSE Nifty 50 Index has jumped about 8% from this year’s low in late March and foreign funds are on course to become net buyers of local equities for a third straight month.
The “obvious buyers” could be Abu Dhabi’s International Holding Co., which had committed to invest in the follow-on sale in January, and other cornerstones, according to Travis Lundy, an analyst at Quiddity Advisors. “And possibly GQG who, when interviewed just after the announcement that they had bought, suggested their common practice was to buy a slug, then buy more over time.”
Bonds Gain
Adani, who became the world’s second-richest person a few months before the Hindenburg report, has denied the short seller’s allegations of market manipulation and accounting fraud. The group has been trying to win back market confidence with a series of investor roadshows, early debt repayments and plans to scale back its pace of spending on new projects. Adani Enterprises posted a 26% revenue gain in the quarter ended March and said profit more than doubled.
The group’s US-currency bonds rose Thursday amid a broad gain in investment-grade dollar notes in Asia after data that showed that US inflation was easing.
All 15 dollar bonds of the Adani group tracked by Bloomberg rose as of 10:26 a.m. in Singapore on Thursday, led by notes of Adani Ports & Special Economic Zone Ltd. due in February 2031 which rose 0.4 cent on a dollar to 69 cents, according to prices compiled by Bloomberg.
Adani Enterprises was close to completing a 200 billion rupee ($2.4 billion) stock sale in late January, but pulled the offering after the Hindenburg report tanked the shares. Back then, the offering got fully subscribed on the final day, aided by a last-minute surge in demand from largely existing shareholders and institutional investors.
The flagship’s shares — which were offered at a range between 3,112 and 3,276 rupees in the January deal — rose as much as 4.4% to 1,975 rupees early on Thursday.
“ADE’s stock price has fallen quite a bit from the highs and investors may not be too negative at this point,” said Deepak Jasani, the head of retail research at HDFC Securities Ltd. “Based on the discount that was given to GQG Partners, a sale at this time around the 1,700 to 1,900 rupees levels would be seen as a vote of confidence for the promoters.”
Adani intended to use the stock sale in January to address concerns already being raised about the conglomerate. The offering would have widened the investor base to fend off allegations that the shares, which had nearly doubled in the previous 12 months, were advancing because they were thinly traded. Proceeds would have also been used to pay down debt and reduce leverage.
(Updates with share prices.)
--With assistance from Shikhar Balwani, Ishika Mookerjee, Catherine Bosley and Harry Suhartono.
