ET questions Adani CFO and his answers mostly around FPO
Adani Group CFO: Founders not Involved in Speculative Activity…. Focus on Strategic, Institutional Bids
FALLOUT OF HINDENBURG RESEARCH REPORT
Following the release of the Hindenburg Research report last week and a short-selling attack on Adani Group stocks, ₹4. 2 lakh crore ($51 billion) was wiped off their market value in two trading sessions. Adani Group CFO Jugeshinder Singh tells Jwalit Vyas, Nishanth Vasudevan & Arijit Barman in an interview that the timing of the report was suspect and seems to be directed at sabotaging the ₹20,000 crore follow-on public offer (FPO) by Adani Enterprises Ltd (AEL) that ends January 31. Almost allthe questions raised by the report relate to disclosures already made by group companies in the past decade. For instance, the report said the Carmichael project’s rail assets were transferred from AEL to the promoter’s private company and the latter immediately wrote off their value, implying that AEL overstated revenue. However, AEL had fully booked the writeoff on its books and the family company simply copied that accounting, as per the advice of the relevant auditor. “This is not ignorance or a mistake but a deliberate attempt to mislead,” he said. Singh talked about the big squeeze and why he’s confident that the Adani story is robust. Edited excerpts:
What’s the size of the short bet based on your intelligence?
We have not yet fully been able to discern what instruments they have used because of the market delays. We also don’t yet know the size of the short.
Did you have any inkling about the move?
You can assess the impact but in a thinly traded stock, repetitive short positions we have been primarily concerned about the loss of value for the minority shareholders. But beyond that, we do not have a mechanism to track every little trade. In fact that’s one of the lear nings from this. Equity trading has not been an area of focus of our executives. We have always focussed on performance, profits, cash flows and such business performance issues rather than market trading.
Who do you think is behind this short trade?
We do not wish to indulge in speculation on who is behind this. It has never crossed our mind, so we assume other corporates also do not indulge in this. But if there is somebody behind this, then it will eventually come out and once we understand we will sternly deal with it. But as a process, before dropping a report like this — in our case a report of lies, misrepresentation — they share it with the relevant parties who then short the stock. But that information flows a little late.
Do you suspect corporate shadowboxing?
Let’s not speculate. As I said, we do not indulge in such activities, so we hope and expect others from the Indian business community would not behave in any different way.
According to your understanding, who all are selling Adani Group stocks (in the last few days)?
From a strategic point of view, we know, we are not sellers. Our longterm, strategic, inter-generational and institutional investors are also not selling. So if it is sold in small lots over a period of time to cover shorts then that data comes with a lag and it’s difficult to fathom and it’s very opaque. We will know about all that soon but immediately I do not have answers to it.
What’s going to be your strategy if the stock doesn’t bounce back on Monday? Open the FPO for longer, give a discount? Can you even cancel it?
We have outlined very clearly the FPO is going as per schedule. Long-term strategic investors do not concern themselves with short-term market volatility and therefore, there is no change in their outlook. Price is not relevant to large, strategic, inter-generational investors. Yes, the retail participation gets affected but an FPO gives us the opportunity to cover the buckets of strategic long-term investors, ultra HNIs, family offices. They are backing us fully based on our meetings and interactions with them. Our anchor book has been oversubscribed. So we are confident of covering the gap that the retail segment will create through the institutional and strategic investors and the FPO will be successful.
You had said previously you expect strategic allies of the group to be key supporters of the issue. On January 27, Ahmad Ibrahim of UAEbased IHC said it’s still evaluating the opportunity. For the record, has IHC invested in the issue thus far?
IHC is evaluating its investment in the FPO. It will complete that work within FPO timelines. We expect that evaluation to complete within the issue timelines.
Has there been any communication from Gulf sovereign wealth funds (SWFs) and investors in the last 72 hours that they want to revi- ew their commitment or their doubling down on the second tranche of the issue?
No. The anchor book is already closed. No communication has happened after that.
Have anchor investors raised concerns over the fall in stock prices? What are you telling them?
This is market volatility, there is no change in the business. We are a utility and infrastructure platform. AEL is focused on infra, transport and energy and these businesses do not change because the stock has become volatile. So, the story of AEL and the value rests in its core infra and utility platforms and those platforms are still performing as they had been yesterday and day before and they will perform as they are supposed to perform tomorrow as well. Airports are performing well, green, new energy projects are going on well, road projects are doing well, data centre business is performing well, our services business is doing well, digital platforms are going on well, so there is no change in the value of AEL, which is into incubating businesses and assets and that’s what the key effectiveness of Adani Enterprises is.
Is there a plan B if the FPO fails?
Our entire capital programme is not based on the fact that we raise money to meet expenses or for general activity. We are very specific. All businesses including Adani Enterprises, itsentities and all our portfolio companies are fully funded, always. It is just aquestion of whether they grow at 20% or 40%, or 10% or 5%. So, that is why this attack will finally fail. Because they have made a massive miscalculation that it is like a tech company that needs to make money to pay its expenses. We are doing this for three reasons — expansion of shareholder register, diversified coverage of our stock from research houses and growth equity capital. If needed, we will moderate our growth.
Can you elaborate what you mean by ‘moderate our growth’?
Adani Enterprises is an incubator. So, it won’t start a new incubating business for six months or one year. Existing incubating businesses are going on.
Have you approached Securities and Exchange Board of India (Sebi) regarding this entire episode?
Asa fundamental point, our group and founders are not involved in any kind of speculative activity. Our core focus remains on the assets we create and how we run them in the best possible way. That has been our strength and it’s not going to regulators. When we understand all of this fully and if we find something which we believe needs to be disclosed to the regulators, we will then provide our findings. But that will take time and it’s a serious matter. Any serious matter of this nature needs to be reviewed and assessed adequately with time and effort spent on it. So at this stage, we haven’t approached anybody as we do not have sufficient material that we could use meaningfully.
Has Sebi approached Adani Group over the volatility of the stock after the Hindenburg report?
We will come out with our comprehensive report by today evening.
Do you think this event will impact the brand equity of the group, which in turn could impact future fundraising?
Our companies’ businesses are deca-
de-old stories. We are at the core of India’s infrastructure and non-discretionary consumer spending. Our 400 million fellow Indians use our services and infrastructure. We are generational investors. So, do we think in 2050, there would be a brand impact of this volatility? Our simple answer is we stick to our basics, which is creating good businesses and running them properly.
There are several FPIs who are big investors in Adani Group entities. Even in the report, they are mentioned. For the record, who are the ultimate beneficiaries of the FPIs?
Many times the issues around FPI investing have been raised. Adani family’s shareholding structure is fully disclosed in the offer documents and many other documents over the last decade. Who the beneficiaries of these FPIs are we have no idea. They are investors but we can say we are not involved in those FPIs.
The 100% pledge of Ambuja shares in September is down to zero as per your latest disclosures.
As we had indicated earlier, there was no pledge. I had myself clarified to the market that there was never any pledge. It was a mischaracterisation from Day 1. And sadly, there is a significant tabloid element to our media. So, despite clarification, they want to continue this narrative. The pledge was never there in the first place.
So what will be the total debt from that acquisition that will come on the group’s books on March 31? A $5 billion addition to $26 billion gross debt? Will it be more or less?
Over the next few days, our quarterlyresults will be out and we will publish our credit profile along with our results. You will get to know the position that nothing dramatic has changed for the group on a monthly basis. We are an infrastructure utility platform. Any capex is already planned. If it is not planned, it’s not happening.
What are the steps that you have taken and will take over the next few days to ensure that the Adani FPO is a success?
Our work was done when the FPO opened. The anchor book was completed on January 25. Because of the severe volatility (in the stock prices), many bids have not come in yet. We are expecting that institutional bids will occur on Monday and Tuesday as scheduled. If there is a clarification required, we will respond to these misrepresentations. Beyond that, there is nothing much that we can do given the tight nature of how the public process is.
Will you be going ahead with legal action against Hindenburg?
Our general counsel had mentioned that and they (legal team) continue to review all options.
Could there be a legal risk like a US Securities and Exchange Commission probe or class action suit from bondholders? We understand you had a call with the bondholders.
No.
From a cash flow point of view, how much dividend was paid by other group entities to Adani Enterprises in the last five years?
Zero. Adani Enterprises is not a shareholder of those businesses.
So where did the primary equity for all the acquisitions for green, roads, airports and ports come from?
Please don’t get confused. Adani Green is a publicly listed company. Everything about Adani is disclosed as Adani Green. Similarly, Adani Power is a publicly traded company for 10-12 years. Same is the case for Adani Gas, Adani Transmission and Adani Ports. So, they have their own capital and investment programme and they are disclosed by the individual entities fully by themselves.
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