 "Gautam Adani, Adani")
Adani Group stocks traded little changed on Friday even as the conglomerate disclosed it had received notices from market regulator Securities and Exchange Board of India (Sebi) alleging non-compliance of disclosure requirements, mainly for related party transactions (RPT).
Shares of flagship Adani Enterprises (AEL) hit a low of Rs 1,045 and were last trading at Rs 1,051, almost unchanged from the previous day’s close. Adani Ports and Special Economic Zone (APSEZ) and Adani Total Gas (ATGL) each traded about 0.5 per cent lower, while Adani Wilmar was down 1.3 per cent. Adani Power and Adani Energy Solutions (AESL) traded with marginal gains 0.2 per cent.
While declaring their financial results for Financial Year 2023-24 (FY24), all the six firms disclosed that they had got show cause notices (SCNs) from Sebi.
Legal experts who studied the disclosure said the allegations don’t seem to be very serious in nature and hence, the markets have taken it in their stride. They added that violations of Listing Obligations and Disclosure Requirements (LODR) Regulations can often be settled under the consent route or attract minimal penalty.
“A show cause notice from Sebi isn't a conviction; it's a legal notice. If the regulator is satisfied with the response, the matter usually concludes there. However, if unsatisfied, Sebi may proceed with conviction. Generally, for first-time violations, Sebi tends to be lenient, imposing fines ranging from Rs 25,000 to Rs 500,000. Subsequent violations may incur harsher penalties,” said Jidesh Kumar, managing partner at King Stubb & Kasiva, Advocates and Attorneys.
“During the quarter ended March 31, 2024, the parent company has received two SCNs from Sebi alleging non-compliance of provisions of the listing agreement and LODR regulations pertaining to related party transactions in respect of certain transactions with third parties and validity of peer review certificates of statutory auditors with respect to earlier years. The management believes that there is no material consequential effect of above SCNs to relevant financial statements and no material non-compliance of applicable laws and regulations,” AEL said in a stock exchange disclosure.
Five other group firms – APSEZ, ATGL, Adani Wilmar, AESL and Adani Power – also disclosed receipt of similar notices which the firms said was “with regard to the transactions entered in the earlier years with certain parties, essentially, from a substance-over-form perspective.”
“The allegations are that the company has not obtained the requisite approvals, and have not made the required disclosure in the financial statements/ annual report (ii) Not recalling security deposits against terminated contracts leading to not using the funds for company's core business purposes and thus not complying with the company's code of conduct. The amounts dues in respect of these transactions along with interest thereon have been received in full before 31st March 2023 and there are no transactions with these parties in the current financial year and there are no losses suffered by the company,” said APSEZ.
It said that it has already replied to Sebi and “the company has denied the charges in its entirety, inter alia, on the basis that these transactions are in full compliance with the prevailing laws and regulations.”
Adani Wilmar said the SCN received from Sebi was related to “validity of peer review certificate (PRC) of the predecessor auditor in earlier financial year, which the company has responded to.”
All the group firms said that they were confident that their financial statements do not require any adjustments on account of the SCNs.
The power-to-port conglomerate, following the US-based Hindenburg Research’s allegations against the group in January 2023, undertook an independent review of the transactions mentioned in the short seller’s report (SSR).
“Earlier in April 2023, the parent company had undertaken review of transactions referred in SSR through an independent assessment by a law firm, which confirmed that (a) none of the alleged related parties mentioned in the SSR were related parties to the parent company or its subsidiaries, under applicable frameworks; and (b) the parent company is in compliance with the requirements of applicable laws and regulations,” it said.
Following Hindenburg’s report, the value of the group firms had fallen by 65 per cent, or Rs 12.4 trillion, from Rs 19.2 trillion to below Rs 7 trillion. However, from the lows on February 27, 2023 the market value of the group has bounced by more than 2 times.
The rebound has been underpinned by the Gautam Adani-owned group’s deleveraging efforts, which included a nearly $2 billion worth sale of promoter shares to the GQG Group in March 2023, which provided a big sentiment to the beleaguered group.
In January 2024, the Supreme Court had disposed of all matters in various petitions including those relating to separate independent investigations relating to the allegations in the SSR. The apex court had also directed Sebi to complete the pending two investigations, preferably within three months, and take its investigations (including 22 already completed) to their logical conclusion in accordance with law.
Sebi continues to investigate some of the allegations made by Hindenburg against the group.
The regulator served SCNs to some foreign portfolio investors (FPIs) such as Albula Investment Fund, Cresta Fund, APMS Investment Fund, Elara India Opportunities Fund, Vespera Fund and LTS Investment Fund that had large exposure to the Adani group firms. As per recent reports, some of the FPIs are looking to settle the allegations through the consent route.
