Adani - Keep your friends close and competition closer
The Adani Business Empire has been in the news for all the wrong possible reasons in the last week or so. Sustained attacks on the Conglomerate from Short Sellers (Read: Hindenburg) along with a general rout of the Indian Stock Market due to Global uncertainties (aided well by the negative press received by Adani of course) has seen various group companies fall as much as 45% in under 5 days of trading.
However, the main worry for Mr. Gautam Adani would have been be the just concluded FPO (Follow On Public Offer) issue of Adani Enterprises, Holding Company and Flagship Entity of the Adani Group. The FPO, among the largest such Public Offerings in Indian History (INR 20,000 Cr or ~$2.4 Billion) would have faced significant pressures had the difference between the FPO price and Open Market Price increased beyond a certain point (Would investors offer money for the FPO when they could get it much cheaper in the Open Market?).
This would have led to a further rout of the Adani Group shares and overall pain for the Indian Capital Markets with rumours strife about Adani Group's "liquidity" position.
However, tragedy may have been averted on the second last day of the FPO application process. And this is something that I found to be very interesting.
When things looked pretty bleak, news poured in that a White Knight had appeared over the Horizon. Abu Dhabi's International Holding Company a large conglomerate from the Gulf Country announced that it would be investing USD 400 Million in the FPO, significantly reducing pressure on the FPO's chance of success. This would be the second investment deal by IHC with the Adani Group following the USD 2 Billion investment in three "green-focused companies" of the Adani Group including Adani Green Energy, Adani Transmission, and Adani Enterprises.
Furthermore, reports on Twitter also suggest a far more interesting source of funds - Namely the Family Offices of Mukesh Ambani, Sajjan Jindal and Sunil Mittal. It appears that Corporate India's biggest names are supporting one of their own, even if there is significant overlap in business activities.
Perhaps, the Old Boys club has felt attacked as a group due to Hindenburg's shenanigans. Or perhaps, they know better than to drag each other down and would rather scratch each other’s back.
These events bring to my mind, another incident in 1982 when Dhirubhai Ambani, the Founder of Reliance, supposedly with the help of a group "Friends of Reliance" beat the living daylights out of a group of short sellers who were trying to bleed the stock before a big issue of preferential shares.
Ambani with his friendly brokers and other "investors" deployed a short squeeze (where buying pressure overwhelmed the short seller’s activities who were then forced to buy shares from Ambani himself (allegedly) to return the shares they had borrowed and sold thereby making him a lot of money during the short squeeze) forcing them to end their short positions at a heavy loss.
As they say, "Same shit, different day".