Business Headlines : The Adani Saga Continues

[00:00:05] The last time an Indian tycoon came from nothing and built a massive business empire like how Mr. Gautam Adani has in a single lifetime was none other than Dhirubayambani and he is a celebrated legend to this day

[00:00:18] and make no mistake over the years there were many allegations of wrongdoings made against him and his group as well After all one of the most famous lines from the best-selling classic novel, Mario Puzos the Godfather

[00:00:30] which was turned into the most well-recognized film of all time went like this Every empire was built on a crime and this statement seems to apply even more today after the Hindenburg report

[00:00:43] So join me for today's video where I tell you how the Adani group is trying to build back investor confidence with its latest roadshows and fundraising Did it work? What was a big mistake they made in my opinion?

[00:00:56] And what Mr. Dhirubayambani did in the 1980s when Reliance Group was attacked in a similar fashion by short sellers And guys if you enjoy such videos please be sure to hit the like and subscribe button for more such financial content

[00:01:09] First let me begin with a lesson in history Back in 1982, Dhirubayambani raised money for Reliance Industries via a rights issue through something known as Convertible Dementures How this works is that a company borrows money from investors and pays interest for some period of time

[00:01:28] before paying the remainder amount in shares at current market price The payday for Reliance investors was coming up and Dhirubayambani naturally wanted the price of his shares to remain as high as possible as he wanted to settle his debt without giving up too much equity

[00:01:44] Just when payday was approaching, a cartel of bear operators supposedly from Kolkata Since the management of the company was artificially keeping the price of the shares high and started short selling shares of Reliance The author of the book Ambani & Sons wrote

[00:02:02] The selling pressure was intense on March 18th, creating a half hour of panic just before the close The bear sold 350,000 shares of Reliance causing the price to fall quickly from 131 to 121 rupees But then something strange happened

[00:02:19] The buying wave began. The more the bear sold and the numbers got to 1.1 million shares the more NRI investors based in the wear station countries bought This left everyone confused as to who was buying Reliance shares During those days, settlement of shares used to happen every second Friday

[00:02:37] unlike the current T plus 2 working day settlement So the bears who had short sold Reliance shares had to either deliver those shares on settlement day or pay something known as Andabadla if they didn't have the shares required for delivery

[00:02:51] to carry over the transaction to the next settlement date Andabadla is basically a per share fee On April 30th, the NRI investors who had been buying the shares of Reliance demanded delivery of the shares from the short sellers or a hefty Andabadla of 25 rupees per share

[00:03:09] The bear cartel were just short sellers and didn't have the money to buy and deliver the shares So they defaulted, throwing the exchange into a crisis that shut it down until the following Wednesday

[00:03:19] In the following days, the price of Reliance shares rose to a lifetime high of 201 rupees as the very same bear cartel were forced to cover their short positions and buy It was later discovered that the mysterious NRI investors who bought shares were friendly brokers of the Irubayamani himself

[00:03:38] and the money was routed through shell companies registered in tax havens A lot of those shell companies were traced back to a man just known as Shah So it was in this way that the Irubayamani extracted a penalty from the short sellers

[00:03:53] who tried to ruin his rights issue Decades later, a different short seller, the Hindenburg Group seemed to have got the better of the Adani Group And although the circumstances surrounding the deal are quite different one can't help but make the comparison

[00:04:08] The Adani Group is facing quite a crisis I must say The Hindenburg report has really damaged its reputation world over The Group has lost in excess of 150 billion dollars since serious allegations that involved accounting fraud and stock price manipulation were levied against it

[00:04:24] Their stocks have been quite volatile in the past month and a half First falling drastically, then bouncing back after its FPO was fully subscribed And then falling again once the Adani Group finally cancelled the FPO

[00:04:36] It's been a seesaw ride since then as its share price keeps reacting to the latest news released Sebi begins investigation, share price drops Company repays debt early, share price rises Investment banks downgrade their bonds, share price falls Company says they're cutting expenses and have enough reserves

[00:04:54] Share price rises again But overall of course their share price is much lower than what it was before the allegations Roughly 60% I might add And because of this, Mr. Gautam Adani's personal wealth has also been eroded

[00:05:08] and he has gone from being the second richest man in the world to being 30 seconds But I think that will be the last thing on his mind The Adani Group in its latest and most serious attempt to rebuild investor trust

[00:05:20] held a series of investor meetings in Singapore and a two-day road show in Hong Kong Attending the meetings were Group CFO Jagdishar Singh and corporate finance head Anupam Misra The Group insisted that it had enough money to repay debt over the next three years

[00:05:37] in addition to a $800 million credit facility it can use In recent filings also they revealed they had cash reserves totaling 31,700 crores as of the end of last year Over the last month the Adani Group has said multiple times that their businesses have strong cash flows

[00:05:55] and they have cash generating assets to back up all their debt The investor meetings in Singapore were held with the assistance of 12 global banks and at the road show in Hong Kong the company met with investors at the Barclays office

[00:06:08] This show of strength seemed to work at least temporarily The beleaguered Group stocks jumped after the road show ended Shares of Adani Enterprises was a top gainer rising 28% in two days ending March 1 Shares of Adani Green, Adani Power and Adani Vilmar

[00:06:25] touch upper circuit of 5% for three consecutive days and Adani Transmission, Adani Total Gas and Ports were also up quite a fair bit But does this mean the Group is nearing the end of its problems? Absolutely not

[00:06:39] But of course it helps that the Adani Group is addressing the allegations and that too with the support of so many big financial institutions by their side Then there are two more very important developments which everyone should be aware of

[00:06:52] First is that a US based private equity firm GQG Partners has bought shares in four Adani companies just a day after its road show ended This decision of selling equity comes just after the management told bond holders

[00:07:07] that the Group will prepay share back loans to the extent of $800 million by March end A few days ago the Adani Group denied a report which claimed it had secured a loan from a Middle East Sovereign Wealth Fund

[00:07:21] So the theme seems to be reject debt and in fact repay as much as quickly as possible And all fundraising should be done only through equity Which is exactly what happened The Adani Group sold shares worth 15,446 crores to GQG Partners

[00:07:39] in Adani Ports, Adani Green, Adani Transmission and Adani Enterprises All the Group's companies were up in that day's trade and shares of Adani Green, Vilmar Power and Transmission hitting upper circuit The second important development was the intervention of the Supreme Court

[00:07:55] It asked SEBI to probe allegations of stock price manipulation and any lapses in regulatory disclosures within two months It also set up an expert committee of six prominent members including a former Supreme Court judge to probe the matter

[00:08:09] A bench of the Supreme Court headed by Justice D. Y. Chandrachod and two other justices in fact rejected the government's sealed cover nominees that would form the committee and insisted on its own choices stating that the process must inspire transparency and confidence

[00:08:28] without an impression of being given of the committee being a government appointed panel Reacting to the top court's direction, Mr. Gautam Adani said The Adani Group welcomes the order of the Honourable Supreme Court It'll bring finality in a time bound manner Truth will prevail

[00:08:46] Now let me get to the part where I tell you what I thought was a big mistake made by the Adani Group For a group to come from nowhere and make it so big so quickly we all obviously know they were up to some of the other Jhukard

[00:09:01] The only question on everyone's mind was how much Jhukard There are enough stories floating around in the media about the Adani Group being close to the Modi government and them being able to bag favourable infrastructure related contracts with relative ease

[00:09:15] Then my question to them is why not just stick to where you're protected? Why venture out into the world where you don't know what's out there? Was it greed? Was it that you had so much need for recognition? And let me explain

[00:09:31] The Adani Group opened itself up to a Pandora's box when it went global in its search for capital The moment they started raising money from international markets they exposed themselves For them to get away with the same Jhukard mentality they were used to in India

[00:09:48] it would take a miracle And as adults we know that miracles only happen in fairy tales So of course they opened themselves up to questioning and the Hindenburg report is probably their undoing So there it is An update on the Adani saga

[00:10:04] which is literally playing out like a drama only seen in a staged opera And while Mr. Gautam Adani is known to be a survivor you may recall he's been kidnapped before and was even at the Taj Hotel in Mumbai when terrorists attacked in 2008

[00:10:18] But this is his group's biggest test till date He's literally being called out on shady business practices and people are actually betting that everyone will agree and therefore short selling his shares And while after the confidence building measures all his group shares have risen by quite a bit

[00:10:37] I personally still maintain what I said a few weeks ago that his shares will stabilize maybe 20-25% lower than what it was before the Hindenburg report at which stage investors should exit as the medium term trajectory doesn't look good

[00:10:52] and as always please do your own research or consult your investment advisor before taking any decisions Thank you Thank you