Adani Group stocks have lost a total of $10 billion in market value this week after MSCI Inc. decided to exclude two entities, Adani Total Gas Ltd. and Adani Transmission Ltd., from its India gauge over concerns about potential equity dilution from a fundraising plan.
Adani Total Gas and Adani Transmission were the biggest losers from the group falling 4 to 5 per cent each in trade at 11.30 am on May 19. Shares of these companies were locked in a lower circuit of 5 per cent after being removed from the MSCI India Standard Index, marking their worst week since late February, a report in Bloomberg said.
On the other hand, Adani Enterprises Ltd will also see a loss of almost 4 per cent, which is the biggest since March.
The exclusion of the two Adani Group stocks has come just within days of the MSCI lowering their free float in its May index review.
Last week, MSCI had announced that it had cut the free float of Adani Total Gas to 14 percent from 25 percent earlier, while that of Adani Transmission was reduced to 10 percent from 25 percent.
The company and the transmission unit also shared plans to raise $2.6 billion via a qualified institutional placement (QIP) or other modes, which triggered concerns about equity dilution.
The Adani Group has been trying to regain investors’ confidence after fraud allegations by Hindenburg Research in late January erased over $150 billion of its total market value. Adani Group stocks marginally recovered after GQG Partners in early March bought stakes in four of the group’s entities, offering a vote of confidence. The market-cap loss currently stands at about $128 billion, according to the Bloomberg News report.
SC panel report on Adani-Hindenburg row
On Friday, the Supreme Court released the report on the Adani-Hindenburg case submitted by the AM Sapre committee, which said that at this stage, it is not possible to conclude that there was a regulatory failure on the price manipulation allegation.
The panel report noted: "The committee is of the view that it would not be possible to return a finding of a regulatory failure in relation to compliance with the regulatory stipulations governing minimum public shareholding stipulation..."
The AM Sapre committee in its report to the apex court noted that the base of capital market regulator the Securities and Exchange Board of India's (Sebi) suspicion that led to the investigations into the overseas entities' ownership of Adani Group is that the group has an “opaque” structure due to which the ultimate chain of ownership around the 13 overseas entities is not clear.
"The foundation of Sebi's suspicion that led to investigations into the shareholding of the FPIs in the Adani-listed companies is that their ownership structure is "opaque" because the ultimate chain of ownership above the 13 overseas entities holding Adani Group stocks is not clear," the report said.
It further noted that the Sebi identified 13 specific transactions where it is investigating the underlying transactions regardless of whether they are legally considered 'related party transactions' from the standpoint of assessing if they were fraudulent in nature.
It added that while the capital market regulator is actively collecting data on these transactions, it has to complete the investigations in a time-bound manner.
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The six-member panel has gone into various aspects of market volatility, investor confidence, regulatory framework, investor awareness, and the investigation into the Adani Group companies.
‘No artificial trading’ found in Adani stocks’ run-up
The expert committee also said it has not found any pattern of “artificial trading” or “wash trades” with the Adani stocks.
In its report, the panel added that in one of the patches, where the price rose, the Foreign portfolio investments (FPIs) under investigation were net sellers. “In a nutshell, there was no coherent pattern of abusive trading that has come to light,” the six-member panel said in its tabled report.
"Furthermore, in the Adani-Hindenburg case, the report pointed out that the chain of ownership of 13 overseas entities is not clear. Also, the ultimate owner of economic interest in an FPI couldn't be ascertained. And that's why, Sebi's suspicion can't be put to rest in the absense of FPI ownership details," the report stated.
Not just that, the report also mentioned Sebi has observed six entities took short positions before Hindenburg Report, and they profited by squaring off their positions after the Nathan Anderson-backed short seller's scathing report against the conglomerate.
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