IHC and other marquee funds court Adani Group after GQG’s $1.87 billion investment

• Marquee global investors keen to pick up stakes in Adani Enterprises, Adani Green and Adani Ports. The group companies are expected to announce names next week.
• Despite the Hindenburg report and the bloodbath in stock prices, investor base in Adani Total, AEL, Adani Green and Adani Transmission sees a sharp jump.
• Historically, Adani Group stocks have displayed such sharp volatility and then smartly recovered too. Global investors are seeing yet another opportunity.

Three months after Gautam Adani returned money to investors and called off the follow-on public offer of Adani Enterprises, the group is being courted by marquee global funds for an investment opportunity in three of its companies – Adani Ports & SEZ, Adani Green and Adani Enterprises. Business Insider has learned that Abu Dhabi-based International Holding Company (IHC) along with a couple of other funds based in the United Kingdom and Middle East are looking to pick up stakes. It may be recalled that IHC had committed $400 million during the FPO of Adani Enterprises. A formal announcement is expected next week.

On Wednesday, Adani Enterprises and Adani Green informed stock exchanges that their respective boards would approve fund-raising proposals through issuance of equity shares on May 13. Marketmen believe that global funds are seeing an opportunity in the group’s stocks after the market cap was eroded by more than $140 billion in the aftermath of the Hindenburg Report.

Adani Group stocks may see a further uptick if some of these global investors commit more funds to group stocks next week. Market is expecting a sell-off by passive funds in Adani Total Gas and Adani Transmission, after the foreign inclusion factor for both was cut by MSCI last week from 25% to 14% and 10%, respectively. Any stock price correction is expected to be an opportunity for both retail and select foreign funds like GQG. With MSCI cutting foreign inclusion factors for both companies, passive global funds will reduce their holdings in the companies to the same extent.

Calamity is often an opportunity for some. It is not just the foreign investors like GQG Partners that have seen an opportunity in Adani Group’s stocks, the retail investor base across nine listed Adani Group companies has jumped from 4.2 million to 7.1 million in the March quarter and 7.2 million in April. Business Insider has also learned that there are at least two other big global funds that have expressed an interest in acquiring stakes in Adani Group entities after GQG’s $1.877 billion investment in March this year.

Foreign institutional investors have continued to pare stakes in Indian companies, primarily the large cap stocks through the March quarter, following the mayhem in the markets. Overall foreign institutional holding in the NSE500 universe was marginally down both sequentially and year-on-year to 18.9%. Foreign institutions have gone against the broader trend and bought stakes in Adani Ports, Indigo, HAL, Indigo and Motherson Sumi during the quarter.

For market veterans, the sharp fall in stock price is not a new phenomenon. In June 2015, the share price of Adani Enterprises fell by over 80% after the company announced a restructuring. The stock started trading at the value of the stock split even before the record date. Similarly, Adani Ports too has seen some very sharp volatility over the course of 10 years. Similarly, Adani Ports too touched a low of ₹257 per share in March 2020 but moved up to ₹823 by April 2021.

Adani Group currently has a retail shareholder base of 7.2 million, which is even ahead of some of the biggest corporate names in India. According to SP Tulsian, Adani Group companies have the second highest base of retail investors after Tata Group companies and other leading listed entities.

In January, Hindenburg Research came out with a detailed report against Adani Group companies that made several allegations against the group’s corporate governance standards and high debt levels. Adani stocks lost marketcap of over $100 billion after the report was released on 24 January. Stocks of Adani Group have remained volatile since then and have remained under pressure.

According to Sushil Kedia, “Stock prices of Adani Group companies may have been volatile, but earnings have not been. Concentrated shareholding makes for higher volatility in any stock. Infrastructure businesses legitimately use so much leverage since the surety of cash flows creates healthy 3Cs - Capacity, Character & Collateral - for lenders to be at peace. If you see the history of Adani stocks, this is not the first time this nose-dive has happened. Bubble valuations due to lower floating stock have repeated throughout its history and the bubble has burst at least three times before to become an even bigger one. This time due to its size now, the politics around the Adani Group intensified making for louder headlines. The value of assets they have is three times more than the debt they have. In time, it will be business as usual, again.”

Foreign portfolio investors’ stakes in Adani Enterprises, Adani Ports, Adani Green, Adani Transmission have risen from the December quarter to March. AEL, the flagship group entity, has seen foreign ownership rise from 15.39% in December to 17.75% in March. Adani Ports too has seen foreign ownership jump from 13.77% in December to 18% in the March quarter. Ownership in AEL has seen the biggest jump with the total shareholder base jumping from 253,432 in December to 746,605 in March.

While domestic institutions have maintained their stakes in all Adani Group companies compared to December, mutual funds are also dipping their feet in select group stocks. Domestic mutual funds have increased stakes in ACC from 8.22% in December to 8.90% in March.

In Adani Total Gas, the overall shareholder base jumped 122% in the March quarter, with the retail shareholder base jumping from 138,724 to 307,955. Domestic institutions have increased stake in the company with holdings rising from 5.98% in December to 6.04% in March. Foreign institutions have pared stakes with overall shareholding declining to 16.31% in March from 17.25% in December.

The six member panel appointed by the Supreme Court has submitted its report on 8 May, 2023. Friday’s hearing will be material for the group as it has been an overhang for the group and has curbed the ability to go ahead with some of their big decisions on group structure and capital raise among other things.