Daily Management Review

Adani's Relations With Its Investors Being Probed By Indian Regulator Even Pms Office Is Briefed On The Issue


Adani's Relations With Its Investors Being Probed By Indian Regulator Even Pms Office Is Briefed On The Issue
According to two sources, India's market regulator is looking into Adani Group's ties to some of the investors in the conglomerate's failed $2.5 billion share sale, as New Delhi grows concerned about allegations made by a U.S. short-seller against one of the country's top industrial groups.
According to two sources with direct knowledge of the situation, the Securities and Exchange Board of India (SEBI) is investigating any potential violation of Indian securities laws or any conflict of interest in the share sale process.
The watchdog is looking into connections between Adani and at least two Mauritius-based firms, Great International Tusker Fund and Ayushmat Ltd., which participated as anchor investors, among others, according to sources who spoke on the condition of anonymity due to the nature of the investigation.
Any entity related to a company's founder or the founder group is ineligible to apply under the anchor investor category under India's capital and disclosure requirement rules. According to one of the sources, the investigation will focus on whether any of the anchor investors are "connected" to the founder group.
The ports-to-energy conglomerate, controlled by billionaire Gautam Adani, one of the world's richest people, has lost more than $100 billion in market value since Hindenburg Research accused it of improper use of offshore tax havens and stock manipulation on Jan. 24. Adani has denied the allegations. Because of the sharp selloff, the group's flagship entity, Adani Enterprises, canceled its secondary share offering, India's largest ever.
The SEBI and the Adani Group did not respond to inquiries about the investigation. Ayushmat Ltd. and Great International Tusker Fund did not respond to requests for comment.
Elara Capital and Monarch Networth Capital, two of the ten investment banks that managed the share offering, are also under SEBI scrutiny, according to sources, who added that SEBI approached the two firms last week.
According to one of the sources, the market watchdog is looking into Elara and Monarch's roles to rule out "any conflict" in the share offering process.
Adani Enterprises shares fell 5% in Friday afternoon trade following Reuters' report, having previously fallen 2.5% earlier in the day.
Hindenburg claims that one Adani private entity owns a small stake in Monarch, which has previously worked as a bookrunner for the group, and that "this close relationship appears to pose an obvious conflict of interest." The short seller also claimed that an Elara fund based in Mauritius had invested 99% of its market value in three Adani stocks.
Monarch was chosen for previous share sales "because of their credentials and ability to tap into the retail market," according to Adani. Adani has stated that "innuendoes" that the firm was in any way related to the conglomerate founders were false.
When contacted, Monarch pointed Reuters to a Feb. 3 exchange disclosure, which stated that an Adani entity had a "minor," 0.03% stake in the company since 2016. According to public records, Reuters was unable to confirm this. Elara did not respond to an inquiry about the regulator's investigation or Hindenburg's allegations.
The fallout from Hindenburg's allegations, which stood to profit from the decline in the value of Adani Group assets, has come up repeatedly as a source of concern at the national level, including at Prime Minister Narendra Modi's office, according to two government officials.
Opposition parties have rallied in parliament to demand an independent investigation into Hindenburg's allegations.
According to one of the officials, the federal corporate affairs ministry, which is in charge of regulating Indian businesses, has briefed officials in Modi's office and has been in contact with SEBI, the market regulator. Reuters was unable to ascertain the specifics of these discussions, which had not previously been reported.
On February 2, the ministry began an investigation into Adani's previous financial statements.
Following the publication of the Hindenburg report, neither Modi's office nor India's Ministry of Corporate Affairs responded to requests for comment on the regulatory probe into Adani.
The conglomerate previously stated that Hindenburg's allegations of stock manipulation were "without foundation" and stemmed from a lack of knowledge of Indian law. It has stated that it has always made the required regulatory disclosures.
T.V. Somanathan, India's Finance Secretary, described the Adani issue as a "storm in a teacup" from a macroeconomic standpoint on Saturday.