No clean chits

Completion of Sebi probe is critical

The Adani group companies are witnessing a significant buying interest this week on the back of the Supreme Court-appointed (SC-appointed) committee report being made public, and it did not find any conclusive evidence of regulatory failure in the context of allegations made by US-based Hindenburg Research in January. On Monday, for instance, the combined market capitalisation of the group companies went up by about Rs 82,000 crore, taking it above the Rs 10-trillion mark. The buzz continued on Tuesday with group companies adding about Rs 60,000 crore worth of market capitalisation. Group companies had come under intense selling pressure after Hindenburg Research made a number of allegations, including that of stock manipulation. The group, as a result, had to withdraw its Rs 20,000-crore follow-on public offering. Hindenburg Research had short positions in the financial instruments of Adani Group and would have benefited from the heavy selling in equity and debt instruments of the conglomerate.

While the matter was being considered by the securities market regulator, the SC intervened and formed an expert committee under Justice Abhay Manohar Sapre on March 2. It also gave directions to the Securities and Exchange Board of India (Sebi) to investigate certain aspects of the case. At the time of the formation of the committee, this newspaper had argued that since Sebi was looking into the allegations, it was unclear how the committee would arrive at any conclusion till the investigation was over. This is exactly what seems to have happened. Among other things, the committee was asked to see whether there had been a regulatory failure in relation to Adani Group companies. There were three particular areas of investigation: Minimum shareholding norm, disclosure of related-party transactions, and stock manipulation.

The criterion of minimum shareholding, as the committee has noted, depends on whether 13 overseas entities, including 12 foreign portfolio investors (FPIs), are compliant in terms of disclosing their beneficial owners. Notably, the need to disclose the last natural person owning any economic interest in the FPI was done away with in 2018, following the recommendation of a working group. FPIs, though, have made the declaration for the purpose of the Prevention of Money Laundering Act. Sebi, however, has been investigating the ownership of 13 overseas entities since 2020. It has found 42 contributories to the assets under management of these entities. Without the full information on the ultimate beneficiary of these entities, it would be hard to conclude anything. Even in the related-party transaction issue, the regulator is looking into specific transactions. Again, till the investigation is complete, it will be hard to say much.

On the question of stock manipulation, the regulator reported 849 alerts were generated by the system related to Adani Group companies, which resulted in four reports, two of them well before the Hindenburg Research report. The regulator, however, did not find any pattern of artificial trading. But it is investigating the issue further. Since the regulator is still investigating different aspects related to the group, there was very little for the committee to evaluate in terms of regulatory lapses. Therefore, till the time the investigation is complete, it would not be appropriate to conclude anything. The SC has given Sebi time till mid-August. The key here would be to find the actual beneficiaries of the stated FPIs. However, at a pure fundamental level, it is hard to reason why some investors would want to accumulate stocks at such exorbitant valuations.