The timing of short seller Hindenburg Research’s report on the Adani Group, just before the $2.5 billion share sale by the conglomerate’s flagship firm, has confounded market watchers. Still, allegations made by US-based firm may have come a little too late to derail India’s biggest ever primary follow-on public offering, they say.
(Bloomberg) — The timing of short seller Hindenburg Research’s report on the Adani Group, just before the $2.5 billion share sale by the conglomerate’s flagship firm, has confounded market watchers. Still, allegations made by US-based firm may have come a little too late to derail India’s biggest ever primary follow-on public offering, they say.
The offering by Adani Enterprises Ltd. already lured a number of anchor investors before the Hindenburg report became news, several analysts noted, which along with a discount given to retail investors will likely help the sale go through. Investors including Abu Dhabi Investment Authority and state-controlled insurer Life Insurance Corp. of India are among anchors that bid in the additional share sale. The book for that category of investors was oversubscribed by 1.8 to 2 times, according to people familiar with the matter.
The allegations would likely have “little impact” on the follow-on sale “as the anchor book was already oversubscribed,” Leonard Law, a senior credit analyst at Lucror Analytics, wrote in a note on independent research platform Smartkarma. “The allegations will lead to some near-term reputational damage, though the longer-term impact could be minor.”
Hindenburg’s Jan. 24 report came as individuals and funds, who have until next week to join the share sale, were busy assessing valuations and the company’s prospects after a 2,500% surge in Adani Enterprises’ stock over five years. That rally trumped even the likes of Elon Musk’s Tesla Inc., and along with gains in other group shares made Adani Asia’s richest man.
“It’s a missile launched with a perfect timing and motive,” said Deven Choksey, managing director at KRChoksey Holdings. “The report in circulation has nothing new to talk about and all such claims made in the report are proven wrong as many times in past. Unless, some meaningful outcome is found, I would say, investors should ignore the noise and focus should be on investments.”
Institutional investors – including anchors – may be allocated up to half of the shares on offer, according to terms of the sale, with retail investors (35%) and high-networth individuals (15%) receiving the remaining half.
The Adani Group is “evaluating the relevant provisions under US and Indian laws for remedial and punitive action against Hindenburg Research,” it said in a statement on Thursday, when India’s stock market was shut for a holiday. Hindenburg isn’t the first research firm to raise concerns around Adani Group. CreditSights, a Fitch Group unit, said in an August report that the conglomerate is “deeply overleveraged” with “stretched balance sheets.”
“I do not expect any changes to the offer parameters,” said Travis Lundy, a pan-Asia analyst at Quiddity Advisors. “The anchor book got priced at top end of the range, while there are basically only two more days of trading and then retail gets shares at a discount to the book anyway.”
Brian Freitas, an equities analyst who publishes on the platform Smartkarma, said the report may deter some funds, particularly those where their stake could be more than 1% of Adani Enterprises’ equity. “There was strong interest on the anchor book though that was likely before the report became public,” he added.
Investors will be keenly watching Adani stocks for further impact when Indian markets resume trading on Friday.
“All the Adani Group shares are high-beta stocks. Their valuations always look stretched,” said Kranthi Bathini, chief market strategist at WealthMills Securities in Mumbai. “The timing of the Hindenburg report is contentious and raises doubts. I don’t think there will be a big negative impact from the report on the group’s stocks.”
–With assistance from Abhishek Vishnoi.
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