Shares of Adani Enterprises, the flagship company of billionaire Gautam Adani-led Adani Group, slipped nearly 4% in early trade on Thursday after its board fixed the issue price of its follow-on public (FPO) at discount. The FPO committee of the board of directors of the company has fixed the floor price for the issue at ₹3,112-3,276 per share, a discount of 13.5% at the lower end of January 18 closing price. The board also approved a discount of ₹64 per FPO equity share for retail individual investors. 

Adani Enterprises share price opened lower and declined as much as 3.7% to ₹3,463.50 against the previous closing price of ₹3,595.35 on the Bombay Stock Exchange (BSE). On the volume front, as many as 0.34 lakh shares changed hands over the counter, while the market capitalisation dropped to ₹3.94 lakh crore.

The Adani Group firm, the country’s third largest company by market cap, has delivered a return of 87% in the past one year, while it rose 41% in the last six months. The Sensex heavyweight touched its 52-week high of ₹4,189.55 on December 21, 2022, while it hit a 52-week low of ₹1,529.55 on February 24, 2022. 

In the country’s largest-ever FPO, Adani Enterprises proposes to raise ₹20,000 crore through follow-on public issue, which will open on January 27 and close on January 31. The bidding by anchor investors will start on January 25, as per the company’s filing with the SEBI.  The company has fixed “a minimum bid lot of four FPO equity shares and in the multiples of four FPO equity shares thereafter”.

“On application, bidders in the offer will have to pay such amount per FPO equity share which constitutes 50% of the offer price per FPO equity share and the balance amount per FPO equity share which constitutes 50% of the offer price per FPO equity share, will have to be paid, on one or more subsequent call(s), as determined by our board or a committee thereof at its sole discretion,” Adani Enterprises said in a BSE filing on Wednesday.

The conglomerate plans to use nearly ₹10,869 crore out of the ₹20,000 crore for funding capital expenditure requirements of its subsidiaries in relation to certain projects of the green hydrogen ecosystem, improvement works of certain existing airport facilities, and construction of greenfield expressway. Besides, it intends to utilise ₹4,165 crore for repayment of certain borrowings of the firm and its three arms - Adani Airport Holdings Ltd, Adani Road Transport Ltd and Mundra Solar Ltd. As of September 2022, Adani Enterprises had a total debt of around ₹40,000 crore.

The move is being seen as part of the company’s strategy to diversify its shareholder base and improve credibility among investors. As per the latest shareholding pattern available on the BSE, the Adani family holds 72.63% stake in Adani Enterprises, while foreign institutional investors (FIIs) and mutual funds own 15.6% and 1.3%, respectively.

Recently, research firm CreditSights, a part of Fitch Group, raised concerns about the Adani group's aggressive business expansion plan, which is predominantly funded with debt, resulting in elevated leverage and solvency ratios. The agency red flagged about the capital structure of Adani Group, controlled by the world’s third richest person, claiming that the conglomerate’s rapid business expansion was largely debt-funded, which could eventually spiral into a massive debt trap, and possibly culminate into a distressed situation or default of one or more group companies.

The report, which was released on August 23, mentioned that the Adani Group had pursued an aggressive expansion plan that pressured its credit metrics and cash flows. Over the past few years, the energy-to-FMCG conglomerate expanded aggressively through both organic and inorganic routes. This includes both rapidly growing operations of its existing businesses (for example, Adani Green is aiming at growing its operational renewable capacity almost five-fold by FY25), and entering into new sectors, in which it has no prior experience (including cement, copper refining, petrochemicals, data centres and most recently, media, telecom and alumina/aluminium production among others).

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