Indian regulator probes Adani's links to investors as Modi's office is briefed

Monarch Networth Capital

10/02/2023 09:12

By Jayshree  P Upadhyay, Sarita Chaganti Singh and Devjyot
Ghoshal
       MUMBAI/NEW DELHI, Feb 10 (Reuters) - India's market
regulator is investigating Adani Group's links to some of the
investors in the conglomerate's aborted $2.5 billion share sale,
two sources said, amid growing concern in New Delhi about a U.S.
short-seller's allegations against one of the country's top
industrial groups. 
    The Securities and Exchange Board of India (SEBI) is looking
into any potential violation of Indian securities laws or any
conflict of interest in the share sale process, said the two
sources who have direct knowledge of the matter.
    The watchdog is investigating relationships between Adani
and at least two Mauritius-based firms -- Great International
Tusker Fund and Ayushmat Ltd. -- which participated as anchor
investors, among others, said the sources, who spoke on the
condition of anonymity due to the confidential nature of the
probe.
    Under India's capital and disclosure requirement rules, any
entity related to a company's founder or the founder group is
ineligible to apply under the anchor investor category. One of
the sources said the focus of the probe would be whether any of
the anchor investors are "connected" to the founder group.
    The ports-to-energy conglomerate -- controlled by
billionaire Gautam Adani, one of the world's richest people --
has seen shares in its seven companies lose more than $100
billion in market value since the Jan. 24 report by Hindenburg
Research, which accused it of improper use of offshore tax
havens and stock manipulation. Adani has denied the charges.
Last week, the group's flagship entity Adani Enterprises
 ADEL.NS  pulled its secondary share offering, India's largest
ever, because of the sharp selloff.
    SEBI and the Adani Group did not respond to requests for
comment about the investigation. Great International Tusker Fund
and Ayushmat Ltd. also did not respond to requests for comment.
    Also under the SEBI scanner are Elara Capital and Monarch
Networth Capital, two of the 10 investment banks that managed
the share offering, the sources said, adding that SEBI had
approached the two firms last week.
    The roles of Elara and Monarch are being examined by the
market watchdog to rule out "any conflict" in the share offering
process, one of the sources said.  
    
    MEETING WITH MODI'S OFFICE 
    Hindenburg has alleged one Adani private entity had a small
ownership stake in Monarch - which has previously worked as a
bookrunner for the group - saying "this close relationship seems
to pose an obvious conflict of interest." The short-seller also
alleged that a Mauritius-based fund of Elara has invested 99% of
its market value in three Adani stocks.
    Adani has said Monarch was selected for previous share sales
"for their credentials and ability to tap into the retail
market". On Elara, Adani has said "innuendoes" that the firm was
in any manner related to the conglomerate founders were
incorrect.
    When contacted, Monarch referred Reuters to an exchange
disclosure on Feb. 3 that said an Adani entity has held "an
insignificant", 0.03%, stake in the company since 2016. Reuters
was unable to confirm this from public records. Elara did not
respond to a request for comment on the regulator's probe and 
Hindenburg's allegations.
    In recent days, the fallout of the allegations by
Hindenburg, which stood to profit from the fall in the value of
Adani Group assets, has come up repeatedly as a cause for
concern at the national level, including at Prime Minister
Narendra Modi's office, two government officials said.
    Opposition parties have protested in parliament to call for
an independent probe into Hindenburg's allegations.
    The federal corporate affairs ministry, responsible for
regulating Indian businesses, has briefed officials in Modi's
office and been in touch with SEBI, the market regulator, one of
the officials said. Reuters could not determine the specific
details of these discussions, which have not been previously
reported. 
    The ministry launched a review of Adani's past financial
statements on Feb. 2.
    Modi's office and India's Ministry of Corporate Affairs did
not respond to requests for comment about the regulatory probe
into Adani after publication of the Hindenburg report.
    The conglomerate has previously said Hindenburg's
allegations of stock manipulation had "no basis" and stemmed
from an ignorance of Indian law. It has said it has always made
the necessary regulatory disclosures. India's Finance Secretary
T.V. Somanathan on Saturday described the Adani issue as a
"storm in a teacup" from a macroeconomic perspective.
 (Reporting by Jayshree P Upadhyay in Mumbai, Sarita Chaganti
Singh and Devjyot Ghosal in New Delhi; Editing by Aditya Kalra,
Sumeet Chatterjee and David Crawshaw)
 ((sumeet.chatterjee@thomsonreuters.com; +852 3462 7757;))