India Finance
Shares of Adani Group crash after freeze by depository
Jun 15, 2021
Adani shares slump after reports of key accounts frozen

Coming Soon: An Adani Watch Exclusive Investigation into Adani Group’s Foreign Investors in Tax Havens. This follows on from the big stories of the last day about the crash in the share prices of key Adani Group companies following reports of a 'freeze' on certain Adani stock-holding accounts.

The prices of shares of six publicly-listed companies in the Adani Group fell off the cliff on Monday after India’s securities depository froze the trading accounts of three Mauritius-based funds that hold stakes worth close to US $6 billion in these Group firms. At their lowest level, the six stocks fell in value by an estimated 17.7 billion Australian dollars or around one trillion Indian rupees (equivalent to US$13.66 billion at current exchange rates) in just under an hour of trading. Four of the Group’s six stocks hit ‘circuit breakers’ with trading suspended after they fell by the maximum amount permitted by stock-exchange rules.

All six stocks of the group did eventually recover from the day’s lows, but intra-day movements in share prices were over 40% in particular instances. At the end of Monday’s trading session, the prices of the shares of five Adani Group companies—Adani Enterprises, Adani Ports and SEZ, Adani Power, Adani Transmissions and Adani Total Gas (the Group’s joint venture with the French Total)—closed in the red. While Adani Ports and SEZ was down by 8.5%, the prices of the other stocks fell between 5% and 6.25%. Only Adani Green Energy survived the bloodbath on the bourses. (SEZ stands for Special Economic Zone.)

The precipitous fall in Adani Group stocks came in the wake of a report in the Economic Times (ET) – India’s (and one of the world’s) most widely circulated financial dailies – that highlighted alleged regulatory deficiencies. The report stated that the National Securities Depository Limited (NSDL) had frozen demat accounts held by three Mauritius-based investment funds – Albula Investment Fund, Cresta Fund, and AMPS Investment Fund – and that they would not be permitted to trade in shares of Group companies. (The full form of ‘demat account’ is dematerialised account or an account to hold financial instruments in an electronic form.)

While no official reason for this action was stated, the report in the ET said, quoting unnamed sources, that there could have been insufficient disclosures to India’s regulatory authorities by these investment funds operating out of Mauritius about their ‘true beneficial owners’ following the imposition of new 'know your customer’ (KYC) norms. The NSDL’s website indicated that accounts of all three investment funds were frozen prior to 31 May.

In a public statement, an Adani Group company described the ET report as ‘blatantly erroneous and done to deliberately mislead the investing community.’ The statement went on to say that ‘the Demat Account in which the aforesaid funds hold the shares of the Company are not frozen.’ Before trading ended, the Group’s issued a ‘clarification’ (aired first by CNBC-TV18) that Albula Investment Fund had not been blocked and was fully operational in and outside India; and that in the case of APMS Investment Fund, there had been a technical ‘account level freeze’ but that the fund remained operational globally.

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The NSDL website clearly stated that Albula Investment Fund and the two other foreign portfolio investors (FPIs) were under an ‘account level freeze.’

More than one media report has attributed the crash to a Tweet posted by investigative journalist Sucheta Dalal of MoneyLife two days earlier on 12 June. Dalal had cryptically Tweeted: ‘… another scandal hard to prove outside the black box of information available with SEBI tracking systems is the return of an operator of the past who is relentlessly rigging prices of one group. All through foreign entities! His speciality & that of a former FM. Nothing changes!’

(SEBI is the acronym of the Securities and Exchange Board of India, the main regulator of the country’s financial markets, while FM presumably refers to Finance Minister.)

While the journalist’s Tweet named no one, other media perceived her Tweet to be referring to the Adani Group, whose stocks have risen by phenomenal proportions despite the havoc wreaked on the Indian economy by the pandemic-induced recession. Even as the country has gone through a downturn, the six Adani Group company stocks have gained anywhere between 200% and over 800% in the past twelve months. Since June 2020, the price of Adani Enterprises’ stock has zoomed 857%, while the prices of the shares of Adani Transmission and Adani Green Energy went up by 625% and 234% respectively in this period.

With the sharp fall in market capitalization (or the share price multiplied by the total number of shares), the gap between India’s (and Asia’s) richest man Mukesh Ambani and the second-richest man Gautam Adani (who heads the Adani Group) widened with the latter’s net worth slipping dramatically. Incidentally, CNBC-TV18 channel is part of the media group headed by Ambani.

Several media reports, including one by The Morning Context, have pointed out that a clutch of foreign portfolio investors based out of the tax haven of Mauritius had invested heavily in Adani Group stocks. In fact, over 95% of the net worth of these investors’ funds comes from the Group’s companies.

The portal’s writer Jayshree P Upadhyay commented in a newsletter sent on Monday evening: ‘This was an event waiting to happen. The stocks of the group, with a minuscule public float, were always a powder keg. The scepticism has only been vindicated now. Even the public shareholding seems artificial as the bulk of it comes from the same set of seven Mauritius-based funds.’
She added that SEBI has received multiple complaints about Adani Group companies’ shareholding pattern and that the regulator had ‘taken cognizance of the complaints and also taken note of the stupendous rise in share prices of Adani companies.’

The writer apprehended that ‘scepticism will spill over to the group’s other plans,’ including its reported proposals to launch new public offers of shares of Adani Wilmar (which deals with edible oils) of an amount of US$ 1 billion and Adani Airports of US$ 500 million. She added that there could be a negative impact on the Group companies’ share valuations that could lead to bankers becoming cautious before lending more to the already debt-heavy corporate conglomerate.

Upadhyay quoted an anonymous banker saying: ‘Much of the Adani Group’s growth is fuelled by debt and even future growth is dependent on bank lending. If I was a banker, naturally I would be cautious lest my actions be questioned later.’

Why are these investment funds in Mauritius so crucial for the Adani Group? Why were their accounts frozen? There is much more to this story than has been publicly revealed so far. Adani Watch will soon be bringing you a detailed investigation by Ravi Nair into the foreign funds investing huge amounts in the Adani Group. Watch this space.