Questions SEBI Needs to Ask Adani Group, Now That It Is Owning Up to Brother Vinod

While technically it may be true that Vinod Adani doesn't have any managerial position in the firm, but the fact that the Adani Group is saying that 'he and Adani should be seen as one', it can be assumed he also has influence on the company's management.

New Delhi: On March 16, the Adani Group said that Vinod Adani, Gautam Adani’s elder brother, is part of the “promoter group” of various listed entities.

However, on January 29, the conglomerate had said, in response to Hindenburg Research’s allegations of stock manipulation and accounting fraud, that Vinod Adani “does not hold any managerial position in Adani listed companies”.

While technically it may be true that Vinod Adani doesn’t have any managerial position in the company, but the fact that the Adani Group is saying that ‘he and Adani should be seen as one’, as per CNBC, in terms of ownership, it can be assumed he also has influence on the management of the company.

The company’s latest statement refocuses attention on Adani Group companies and their free float position.

Publicly traded companies are required to have at least 25% of their shares held by non-promoters – be it retail investors, mutual funds, foreign portfolio investors (FPIs), and insurance companies – to stay listed on exchanges. These shares are called public float or free float or public shareholding.

What is ‘free float’?

Free float refers to the shares of a company that can be publicly traded and are not restricted (i.e., held by insiders). It helps investors as it provides a more accurate representation of the stock’s true value. This is also required to mitigate manipulation and insider trading.

Data from Trendlyne shows in the case of Adani Group, a few investment funds hold most of the free float.

The pie charts below are in the form of a time slide. They show data from three years ending December 2020, December 2021, and December 2022. The information for rest of the FPIs* is not available on the website.

Adani Enterprises’ share price jumped 2735% in 2.5 years, from Rs 141.40 on April 30, 2020 to Rs 4,008.85 on November 11, 2022.

The Wall Street Journal reported in February this year that Opal Investment Pvt. Ltd – one of the FPIs in Adani Power – is linked with the Adani family. The Mauritius-based company was formed by Trustlink International Ltd, a financial-services firm with ties to the Adani family, the report said.

One of Trustlink’s directors, Louis Ricardo Caillou, is on the board of Opal. Caillou is also named as a board member of another Mauritius-based firm, Krunal Trade & Investment Pvt. Ltd.

Vinod Adani is also a director at Krunal Trade & Investment, along with Subir Mittra, the chief executive of the Adani family office.

Adani Power had in its latest quarterly reports described Opal as an independent shareholder that has no ties to the conglomerate beyond a 4.69% stake in the company in its quarterly report, the report said.

Adani Power’s shares increased by 166.8% in two years, from Rs 342.50 on September 11, 2020, to Rs 913.80 on September 23, 2022.

Adani Transmission’s shares jumped by 757% in nearly two years, from Rs 477.20 on January 20, 2021 to Rs 4,094.75 on September 16, 2022.

In its report, Hindenburg Research said that “New Leaina [one of the FPIs in Adani Green Energy] is operated by incorporation services firm Amicorp, which has worked extensively to aid Adani in developing its offshore entity network. Amicorp formed at least seven Adani promoter entities, at least 17 offshore shells and entities associated with Vinod Adani, and at least three Mauritius-based offshore shareholders of Adani stock.”

Adani Green Energy’s shares jumped by 678% in nearly two years, from Rs 370.45 on August 7, 2020 to Rs 2,882.80 on April 29, 2022.

Adani Total Gas’s shares increased by 338% in two years, from Rs 893.90 in January 15, 2021 to Rs 3918.90 in January 20, 2023.

Interestingly, the rest of the FPIs, whose details are not available online, keeps on increasing year on year. Bloomberg columnist Andy Mukherjee had in September 2022 written about these “silent soldiers”, or “Adani’s fortune drivers”, and that “they deserve some scrutiny”.

As of December 2020, the rest of the FPIs held 4.16% in Adani Enterprises. The holding increased to 7.70% and 11.02% in December 2021 and 2022, respectively. In Adani Power, as on December 2020, the rest of the FPIs held 7.81%. The holding increased to 7.43% and 11.59% in December 2021 and 2022, respectively.

The same is the case for all the group firms analysed in this piece.

Free float norms

The pie charts also show that in some group companies, a majority of the group’s investments’ free float has been held by offshore funds.

According to OpenCorporates, at least four of these funds, namely Cresta Fund, Albula Investment, APMS Investment Fund, and LTS Investment Fund, have the same address: Edith Cavell Street, Port Louis, Mauritius.

As per Hindenburg, Cresta Fund, Albula Investment, APMS Investment Fund, and LTS Investment Fund, along with another fund, Lotus Global Investment Fund, are all controlled by Monterosa Investment Holdings, per Legal Entity Identifier data.

Additionally, one of the anchor investors in the Rs 20,000 crore share sale, which Adani had to call off, was Aviator Global Investment Fund. Its senior management official Antonino Sardegno led “investment solutions” from 2008 to 2013 for Monterosa Group, Forbes reported.

Also read: ‘Surprised We Don’t Have a Hindenburg in India’: Full Text of P.N. Vijay’s Podcast Interview

Given that, the promoters held 74.92% as on December 2020 and 2021, and 72.63% in December 2023, in Adani Enterprises, the free float comes down to just over 25%.

Promoters held 74.92% as on December 2020 and 2021. As per data, the non-promoter holding (in the form of FPIs) accounted for at least 10-15%. But 1) three of the funds have the same address, 2) as per reports, some of these funds have links to the Adani family, and 3) three funds are controlled by a single fund, Monterosa.

So, if the offshore funds are to be accounted for having links to the Adani family, then the free float would slip to just under 25%, or even less than that.

According to an analysis by the Morning Context, “if you remove these [offshore] funds, the effective [public] shareholding in Adani Enterprises comes down to only 10%.” In Adani Transmission, the “effective public float is about 7-8%”.

This would be acceptable if it was established that these funds were not owned by people from the Adani family or linked to them.

However, the ownership of these funds is unknown because Mauritius is a tax haven.

Per a Forbes report, Vinod Adani was a key player in Adani Group’s big deals. In fact, by the Adani Group’s own admission, Vinod Adani is the ultimate beneficiary of ACC and Ambuja Cements, not Gautam Adani. He was also at the heart of another massive deal with French energy giant TotalEnergies.

And as per Hindenburg, Vinod Adani, or his close associates, manage 38 shell companies based in Mauritius.

In July 2021, much before Hindenburg released its report, the Securities and Exchange Board of India (SEBI) had written to the custodians of FPIs owning shares in six Adani Group firms, seeking information on their “ultimate beneficiary owners”. These funds included Albula Investment Fund, Cresta Fund, and APMS Investment Fund.

As mentioned earlier, these funds have the same address.

All this leaves us with some major questions:

1. Who is the ultimate owner of these funds?

Hindenburg has alleged that Vinod Adani operates 38 shell companies in Mauritius. The short seller, however, has not released a list of these funds.

The Indian Express has reported that one of the Mauritius-based funds, Elara, has invested independently in India as well.

Elara India Opportunities Fund is a promoter entity in a defence company, in which Adani Group is a co-owner. The Bengaluru-based company, Alpha Design Technologies Private Limited, has a Rs 590-crore contract with the Union government.

2. Doesn’t this put a red flag on the company’s free float status?

As mentioned earlier, listed companies are required to maintain a minimum public holding of 25%. Being listed is critical as it allows a company to raise money from the market.

However, if these rules are not met, there are implications on these companies’ public listing status.

On March 15, stock exchanges froze the promoter shareholding of Patanjali Foods after the company failed to meet the 25% public shareholding within the stipulated time period. According to Business Standard, the promoter stake in the Baba Ramdev-backed company is currently at 80.82%.

Published on March 21 at 8:30 pm, this story was updated to clarify that it may be true that Vinod Adani doesn’t have any managerial position in the firm, but the fact that the Adani Group is saying that ‘he and Adani should be seen as one’, in terms of ownership, it can be assumed he also has influence on the company’s management.