Adani Enterprises' fundraise targets retail buyers, allows discount pricing

Adani Enterprises Ltd chose a fundraising route for its $2.5 billion share sale that allows the group to woo retail investors through potentially discounted prices

Adani Enterprises Ltd., the flagship firm owned by Asia’s richest person Gautam Adani, chose a fundraising route for its $2.5 billion share sale that allows the group to woo retail investors through potentially discounted prices.
 

The 200 billion rupee ($2.5 billion) equity sale via the further public offer mechanism, approved Friday, gives the company maximum flexibility, including pricing at a discount to target more investors, Chief Financial Officer Jugeshinder Singh said in an interview. After tapping strategic investors in recent years, Singh said the conglomerate was looking for a broader investor base that doesn’t mind a company investing in long-term projects which can take time to show returns. 

“We have done strategic capital. The next capital is patient capital,” Singh said. “Indian mom and pop investors invest for their children and grand children.” 

The flexibility to price the share sale at a discount can make the offering more palatable for a stock that’s trading at hefty valuations. The fundraising is part of the billionaire’s broader attempts to drive down debt ratios, seek global legitimacy among investors and silence his naysayers. Concerns have grown that his breakneck expansion spree across media, cement and green energy has boosted leverage and financial complexity at the ports-to-power conglomerate.

The follow-on share offer “permits the company to broaden its investor base” since both new retail and institutional investors can participate, according to Sandip Bhagat, a Mumbai-based partner at S&R Associates. “Free pricing is permitted, unlike a Qualified Institutional Placement” and the company founders don’t need to contribute their own funds in a further share sale, unlike a rights issue, he said.

Price Freely
 

Ability to price freely will be very valuable for a stock that has surged more than 2,000% in the last four years, data compiled by Bloomberg show. Adani Enterprises is trading at a valuation of over 158 times its one-year forward earnings. By comparison, Reliance Industries Ltd. -- India’s largest firm by market value -- is at about 22 times while NSE Nifty 50, an index which includes Adani Enterprises, is at about 20 times.

At least 35% of the further share sale will need to be offered to retail investors. That’s equity worth as much as 70 billion rupees, or just a little short of what the country’s largest-ever share sale by Life Insurance Corporation of India sought to raise early this year from retail investors through a deeply discounted initial public offering.

This fundraising effort can also increase float and enhance visibility with the retail investors, said Manan Lahoty, a partner at IndusLaw in Mumbai. The company, known for incubating Adani’s new businesses before they are mature enough to be spun off, is currently tracked by just two brokerages.

The further share sale is an outcome of a strategy decision taken several years ago -- to reorganize debt, bring in strategic investors and then target patient capital for growth, according to the Group CFO Singh.