On February 2, Thursday, India National Stock Exchange (NSE) put Adani Enterprises, Adani Ports, and Ambuja Cements under Additional Surveillance Mechanism (ASM). With this, trading in the shares of these firms will necessitate a 100% margin. This is meant to curb speculation and short selling.
This comes after a Hindenburg Research report claimed that the Indian giant had participated in a clear stock manipulation and accounting fraud scheme over decades.
Additional Surveillance Mechanism
If stock prices become volatile, market regulators around the world frequently become concerned. In India, the stock markets frequently impose restrictions like price bands, periodic call auctions, and circuit filters to protect investors from excessive stock volatility.
The Securities and Exchange Board of India (SEBI) and the domestic exchanges have implemented Additional Surveillance Measures (ASM) in a bid to curb short selling and stock volatility. ASM framework came to effect on March 26, 2018.
The National Stock Exchange on its website mentions the ASM framework as, “In continuation to various surveillance measures already implemented, SEBI and Exchanges, pursuant to discussions in joint surveillance meetings, have decided that along with the aforesaid measures there shall be Additional Surveillance Measures (ASM) on securities with surveillance concerns based on objective parameters viz. Price / Volume variation, Volatility, etc.”
The Securities and Exchange Board of India (SEBI) and exchanges jointly decide on the selection criteria for securities to be placed in ASM, which include “high low variation, client concentration, PE, close-to-close price variation, market capitalization, volume variation, delivery percentage, and the number of unique PANs.
As per the NSE FAQs, the investors are alerted by an ASM shortlisting that the stocks have experienced unusual activity. It should not be interpreted as an unfavourable or adverse action against the concerned company or entity since the “shortlisting of shares under ASM is solely on account of market surveillance.”
On February 1, Bloomberg reported that Gautam Adani’s wealth plummeted from $120 billion to $72 billion amidst slumping shares. The latest Bloomberg Billionaires Index records Adani’s net worth at $61.3 billion.
Despite the allegations, Adani group went ahead with its plan and rolled out its Rs 20,000 crore Follow-on Public Offering (FPO) which was oversubscribed by 1.02 times on its final day, due to high demand from non-institutional and qualified institutional investors. Retail investors, however, abstained from subscribing due to the large gap between the stock price and the FPO price range.
However, Gautam Adani in a video message announced the decision of the Board of Adani Enterprises Ltd (AEL) not to go ahead with the fully subscribed FPO.
Gautam Adani, Chairman, Adani Enterprises Ltd referred to the volatility in the stock over the last week and said the interest of the investors is paramount and to insulate them from any potential financial losses, the Board has decided not to go ahead with the FPO.
“The Board takes this opportunity to thank all the investors for your support and commitment to our FPO. The subscription for the FPO closed successfully yesterday. Despite the volatility in the stock over the last week, your faith and belief in the Company, its business, and its management have been extremely reassuring and humbling. Thank you,” Adani said.
“However, today the market has been unprecedented, and our stock price has fluctuated over the course of the day. Given these extraordinary circumstances, the Company’s board felt that going ahead with the issue will not be morally correct. The interest of the investors is paramount and hence to insulate them from any potential financial losses, the Board has decided not to go ahead with the FPO,” he added.
Chairman @gautam_adani‘s address to investors after withdrawal of the fully subscribed AEL FPO#GrowthWithGoodness #NationBuilding #AdaniGroup pic.twitter.com/f9yaYrxCzx
— Adani Group (@AdaniOnline) February 2, 2023
Even after this, the five group stocks all closed in a lower circuit on Thursday. Adani Enterprises, the company’s flagship, fell 26.7% and finished at a one-year low of $1,565.
In another development, following Credit Suisse’s decision to cease accepting bonds issued by Adani Group firms as collateral for margin loans to its private banking clients, Citigroup’s wealth unit has also stopped offering its clients margin loans secured by securities issued by Adani Group companies.
RBI steps in
A day after the conglomerate withdrew the Rs 20,000-crore FPO of its flagship firm Adani Enterprises amid the sharp decline in its stock prices, the Reserve Bank of India (RBI) reportedly sought information regarding lenders’ exposures to the Adani Group.
Meanwhile, Dinesh Kumar Khara, the chairman of State Bank of India, the largest financier is said to have given loans totaling up to $2.6 billion to companies affiliated with the Adani conglomerate, stated that he sees no “challenge” to the bank’s current lending to the group.
“We have not experienced any conflict default from this entity and we don’t expect to have any challenge because the assets have robust cashflow so as far as our (SBI) lendings are concerned we don’t see any such problem and don’t expect any kind of pressure on the group companies as far as liquidity is concerned and as far as their ability to honour their commitment is concerned,” Khara said.
Hindenburg Report
Hindenburg Research, which claimed of having conducted an investigation for the last two years, said Gautam Adani, the founder and chairman of the Adani Group, has a net worth of approximately $120 billion, mainly due to an 819% average stock price growth in the group’s seven most significant publicly traded companies over the last three years.
Adani Group trashes Hindenburg Report
Calling the short-seller a ‘malicious combination of selective misinformation and stale, baseless and discredited allegations’, the Adani Group had questioned the timing of the Hindenburg report as the group was to roll out its Follow-on Public Offering from Adani Enterprises.
Adani Group in its 413-page response to the Hindenburg Report said the recent report by Hindenburg Research was not an attack on any specific company but a “calculated attack” on India, its growth story, and ambitions. It added the report was “nothing but a lie”.
