Introduction:
Various Companies up till October have raised around 52,759 crore rupees from Initial Public offerings or IPO as of this fiscal year[1], such was the case of Adani – Wilmer which had applied for an IPO but was put into abeyance by SEBI. Adani-Wilmer is a subsidiary of Adani Group which is known throughout India by the brand name of Fortune in the industry of edible oils. The only calculated deduction one could make for the reason for abeyance in the case of Adani Wilmer was the ongoing investigation into certain entities owned by Adani Group lead by SEBI and DRI (Directorate of Revenue Intelligence) and also the Foreign Funds linked to Adani group being under the scrutiny of SEBI.[2]
But this is a normal process of SEBI which thoroughly checks for any discrepancies in Companies’ files that apply for an IPO as of 8th December 2021 more than 12 companies are awaiting their IPO even after getting approved by SEBI whose collective IPO would be worth around Rs 13,000 Crore. Few of these large IPOs are filed by Go Airlines (Rs 3,600 Crore), Fincare Small Finance Bank (Rs 1,330 Crore), Pradeep Phosphates (Rs 1,255 Crore), and many more.[3]
IPO Details
Adani – Wilmer is a joint venture between India based Adani Group and Singapore based Wilmer Group- the company has a 50 – 50% ownership. The IPO has an issue size of 4,500 Crore rupees or 601 million dollars which is a fresh issue, which means that neither of the firms will be dissolving any of their shares.[4]
Adani Wilmer is the biggest
- Importer of crude edible oil.
- Exporter of castor oil and its derivatives.
- Manufacturer of glycerin, stearic acid, castor oil, basic oleochemical, and lauric fat.
Adani – Wilmer’s flagship oil brand is already a household name. The Fortune brand holds a dominating 20% of the edible oil market.
SEBI Intervention
The Securities and Exchange Board of India had put the Adani – Wilmer IPO on hold due to an underlying investigation against the Foreign Portfolio Investment (Hereafter called FPI) which had Investment in various subsidiaries of Adani Group. Another reason for the investigation was also the movement of Adani Group stocks which had grown as much as 1000% in the last year. The SEBI suspected price manipulation in the said case.[5]
What is FPI?
The definition of FPI was made such that it would fit in with the nomenclature of categorizing investments of foreign investors, the translation of the said acronym being investors who have short-term views on the firm in which they invest.
FPI can hold less than 10% in a company. FPI is quite contrasting to Foreign Direct Investment (FDI) who has long-term interests in a firm.[6]
Back to the main point, the three FPI’s which were heavily invested in Adani Group were Albula Investment Fund Ltd, Cresta Fund Ltd, and APMS Investment Fund Ltd.
These FPI’s together had reported having a holding of Rs 43,550 Crore worth of shares in a few Adani Group subsidiaries for more than a decade which were as follow[7]
- Adani Power
- Adani Enterprises
- Adani Transmission
- Adani Gas
As per norms various FPI has diversified Investment Portfolio but the total of 96% of the Funds of the three FPI’s was invested in Adani Group. All three FPI’s were registered at Edith Cavell Street, Port Louis, Mauritius. SEBI has already contacted the Mauritius regulator for furthering the said investigation. Although it is a known fact that FPI’s are just like shareholders/investors in Adani group and are completely independent, and thus have no relation with Adani Group.[8]
These three FPI’s had their accounts frozen by the National Securities Depository Ltd (NSDL) due to an investigation that was unrelated to Adani Group. But due to SEBI policy requirements – If one department of the regulator is investigating a company, a company or entity which is related and has also applied for an IPO may not get approval for 90 days. This abeyance can again be extended for not more than 45 days[9].
Although the reason was not disclosed by SEBI regarding the frozen accounts, citing law firms engaged in handling foreign investors and custodian bank officials mentioned under the Prevention of Money Laundering Act (PMLA) the said FPI’s must have not disclosed adequate information of the beneficial ownership.[10]
The outcome was the freezing of the three FPI’s accounts by the Depositories on the order of SEBI. As soon as the news broke out, the shares of Adani subsidiaries in which the FPI had invested fell sharply and hit the lower circuits. The Adani Group shares continued to fall for a week after which it gained some recovery momentum. During this slump, the Adani Group lost 2 Lakh Crore Rupees of value. The stocks fell around 7.7% to 23% in the first four days of the week. The consequence being the firm’s market capitalization fell by over a sixth.
The Minister of State for Finance Shri Pankaj Chaudhary stated that in matters about Global Depository Receipt (GDR) issued by some Indian companies which are listed, SEBI via order dated June 16, 2016, had directed NSDL and CSDL to freeze particular accounts of a few FPI’s in which Albula Investment Fund Ltd, Cresta Fund Ltd, and APMS Investment Fund Ltd were included among others.[11]
What is GDR?
A global Depository Receipt can be defined as a bank certificate that is issued in many countries for shares of a company situated in a foreign country. The main purpose of GDR’s is to raise capital in local markets as well as in the international markets. It can be either private or public stock offerings.[12]
Another point worth noting was that only the Adani Group Stockholdings of the three said FPI’s were frozen while the other stock holdings in other firms were left untouched. SEBI locked the holdings of the previously stated Adani Group subsidiaries at a lower circuit limit of 5% each.[13]
In a Similar matter, SEBI in June 2021, put the Go First IPO in abeyance for matters about a pending investigation in regards to the promoters of the company which included – the Wadias, and Bombay Dyeing.
The IPO was grounded for 90 days, The IPO worth Rs 3,600 Crore was in a suspended state due to irregularities of Bombay Dyeing Company. A show-cause notice was received by Bombay Dyeing Company from the CFID (Corporation Finance Investigation Department) which will carry out the preliminary investigation for the appropriate related matters.
Conclusion
Adani – Wilmer IPO has received approval of SEBI and will be listed on the market. On 16th October 2021 Adani – Wilmer IPO worth Rs 4,500 Crore was given the said approval. The approval was given after all the relevant investigation was conducted and no discrepancies were to be found.
The Securities and Exchange Board (SEBI) of India without any distractions keeps their main goal and motive clear, that is Investor Protection, by providing relevant guidelines and making sure their investment is safe. Another motive of SEBI is the prevention of fraudulent practices and malpractices in accordance with activities of the stock exchange.
Such was the case in Adani – Wilmer IPO where SEBI made sure there was no involvement of malpractice and the investors were aware of the ongoing investigations so that they have complete knowledge. SEBI has without exception to its best possibility has protected the Investors, Regulated the market to keep it far from frauds, changed and developed the market practices as time goes on from offline to online stock exchanges, to the recent blockchain technology on which cryptocurrencies are based to anything in the future that might come SEBI is prepared.
References:
[1] Moneycontrol, Companies raised Rs 52,759 crore from IPOs till October this fiscal: Nirmala Sitharaman, DECEMBER 06, 2021 / 02:18 PM IST, https://www.moneycontrol.com/news/business/ipo/companies-raised-rs-52759-crore-from-ipos-till-october-this-fiscal-nirmala-sitharaman-7796011.html
[2] DNA Web Team, DNAIndia, Why foreign funds linked to Adani Group companies are under the scanner, Jun 15, 2021, 02:01 PM IST https://www.dnaindia.com/explainer/report-dna-explainer-why-foreign-funds-linked-to-adani-group-companies-are-under-the-scanner-sebi-gautam-adani-nsdl-bse-2895400
[3] Kshitij Bhargava, Financial Express, IPO Buzz: GoAir among 13 firms sitting with IPO approval from SEBI: Rs 13,000 cr public issues may hit street, October 05, 2021 12:45 PM, https://www.financialexpress.com/market/ipo-news/goair-utkarsh-among-13-firms-sitting-with-ipo-approval-from-sebi-rs-13000-cr-public-issues-may-hit-street/2344003/
[4] Padmini Subhashree, TRANSFIN, Adani Wilmar IPO – Here’s All You Need to Know 3 December 2021, https://transfin.in/adani-wilmar-ipo-heres-all-you-need-to-know
[5]DNA Web Team, DNAIndia, DNA Explainer: Why foreign funds linked to Adani Group companies are under the scanner, Jun 15, 2021, 02:01 PM IST, https://www.dnaindia.com/explainer/report-dna-explainer-why-foreign-funds-linked-to-adani-group-companies-are-under-the-scanner-sebi-gautam-adani-nsdl-bse-2895400
[6] James Chen, Investopedia, Foreign Portfolio Investment (FPI), May 29, 2021, https://www.investopedia.com/terms/f/foreign-portfolio-investment-fpi.asp
[7] Treadlyne, Albula Investment Fund Ltd’s portfolio and holdings, Sep 30, 2021, https://trendlyne.com/portfolio/superstar-shareholders/53818/Q3-2021/albula-investment-fund-ltd/
[8] Harshita Tyagi, Timesnownews, SEBI, DRI investigating certain entities belonging to Adani Group: MoS Finance tells Parliament, Jul 19, 2021 | 15:40 IST, https://www.timesnownews.com/business-economy/companies/article/sebi-probing-adani-group-companies-for-non-compliance-of-rules/787147
[9] Tarun Sharma, Moneycontrol, SEBI holds Adani Wilmar IPO due to investigation against Adani Enterprises, AUGUST 21, 2021 / 07:26 PM IST, https://www.moneycontrol.com/news/business/ipo/sebi-holds-adani-wilmar-ipo-due-to-investigation-against-adani-enterprises-7367671.html
[10] ET Now Digital, NSDL freezes accounts of 3 FPIs owning Adani Group shares worth Rs 43,500 crore, Jun 14, 2021 | 10:15 IST, https://www.timesnownews.com/business-economy/companies/article/nsdl-freezes-accounts-of-3-fpis-owning-adani-group-shares-worth-rs-43500-crore/770199
[11] Supra note 6, para 5
[12] Adam Hayes, Investopedia, Global Depository Receipt (GDR), April 30, 2021, https://www.investopedia.com/terms/g/gdr.asp
[13] Pawan Nahar, ETMarkets, Adani Group stocks tank on Sebi, DRI probe news, Jul 20, 2021, 10:24 AM IST, https://economictimes.indiatimes.com/markets/stocks/news/adani-group-stocks-tank-on-sebi-dri-probe-news/articleshow/84574684.cms?from=mdr
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