Adani Group CFO says no change to FPO pricing, will proceed as per schedule — click for full interview

Billionaire Gautam Adani's group hit back at the allegations made by short-seller Hindenburg Research and claimed that its report on the company was a "calculated attack" on India, its institutions and the growth story. Adani Group has claimed that the allegations are "nothing but a lie" and is driven by "an ulterior motive" to "create a false market" to allow the US firm to make financial gains.

To find out what Adani Group is planning and dealing with the accusations made in the report by Hindenburg Research, CNBC-TV18 spoke to Adani Group CFO Jugeshinder 'Robbie' Singh on the main issues raised — shareholding structure, promoter leverage and accounting and auditor pedigree.

Q: How confident are you that the FPO will sail through?

A: On January 25, when we opened our anchor book, it was subscribed over one and a half times, and then on Thursday (January 26), this report dropped. So, there was this issue in terms of the volatility in the market, where the subscription amounts were a little bit less, as you correctly reported. But we are confident that on the institutional side, the entire issue is based on our discussion, roadshow, meetings, etc., and will be fully subscribed. Rumours were going on. So, we clarified on Saturday night that the FPO would proceed with the current pricing and the current timelines. We are supremely confident that from an institutional perspective, we are there, but there will be some pullback in the retail, given the subscription pricing differential and volatility.

Q: There is a significant difference between the current market price and the pricing of the FPO itself. Why would anybody put in money there and not buy from the open market? If you are so confident this will go through, will there be a change in pricing?

A: FPO will go ahead on the same conditions we launched.

Q: Do bankers need to underwrite the issue?

A: We didn't need that. So, we never asked for it. We were always confident of the subscription, especially on the institutional side. We also had a huge amount of — we are one of the few corporates who does domestic roadshows. We are always very comfortable that there is a huge domestic demand. And that was true till this volatility point; nearly 40 lakh applications went out. And so, I'm privy to that. But that was never an issue for us in terms of the demand. And we did that analysis last year. And that's why we could announce that we will do Rs 20,000 crore — India's largest private FPO. So, that underwriting question never came up in our thinking.

Q: For the people who are putting money in this FPO, how would this price difference work?

A: That's a very good question. In Adani Enterprises, if you look at how somebody ascribes value if the value is not like because of earnings and its P/E or the value of Adani Enterprises is its capacity to incubate good quality businesses. So, the underlying value of Adani Enterprises, what is the value of Adani Airports, what's the value of Adani new industries, which is a green hydrogen ecosystem, what is the value of Adani Roads, Adani data centre business, mining services, materials and metals.

Even with this share price volatility, the value of those businesses has not changed. So, when you're a long-term strategic investor or institutional investor, what you're saying is that, okay, they are looking at the fact, and we also look at it this way, is that, let's say I own 100 shares of Adani Enterprises, then I know I will get 100 shares of or in that proportion, I'll get my shares in the airport business, in green hydrogen business, in the data centre. Now those businesses, anyways, as we have flagged in a roadshow, will be coming to market somewhere between 2025 and 2028. So, their value is nothing to do with today. And that value stays. So, an institutional investor is looking at what number of shares they want to have. Now value becomes important in the going, but when looking at a long-term, intergenerational investment, this value is less important than what value the airport will be or what value the green hydrogen business will be.

There the entire story is correct, and the entire story is intact. And the execution capability is what people are betting on. And the execution capability of the group to execute large projects consistently over the last 30 years people have seen. So, that's why they are comfortable. They understand that. But an institutional player also wants some substantial percentage — 0.2 percent — that is difficult to acquire in the market because then the price will again go up. So, you're back to square one. If there is that level of buying. So, for them, it's just a temporary issue because the underlying value remains intact. And that's what one would understand as well.

A: No, MSCI did not reach out. They reached out to stakeholders, they do their normal work. We expect that over a period of time, this is a continuation of a process that they go through if there's a level of volatility. We expect that to conclude, but that's the MSCI's position as to what they do. We believe that now that we have circulated our comprehensive, multi-100 page response to the report, which clearly establishes with documentary evidence that this report is full of misrepresentations and I'm being charitable, or at worst, is just outright lies — we are confident that once people have the chance to digest the published report, our response that they will conclude is that this has been a very malicious, timed, deliberate misrepresentations put out specifically to sabotage the FPO.

A: No, we've put our report out. It has gone to our websites, to SEBI, to regulators, to investors, to banks, to rating agencies. It is a comprehensive response, a point-by-point response. So, we expect that if there are questions there when people take some days to go through hundreds of pages. But if you indulge me for five seconds, the thing that I would like to highlight is that, putatively, we were asked 88 questions. We answered all of them.

68 of those questions were subject to no research, or any two-year period. Somebody could have picked it up in one day because they are our own disclosure. Yeah. Seven questions were like asking what you mean by growth with goodness and that kind of rhetorical questions. Six questions were related to already disclosed from a shareholder perspective, like we disclosed in the Holcim offering and open offer document, we disclosed our overseas holding structure fully. Before that, it is disclosed to SEBI, then we have disclosed domestic, so those kinds of questions.

Six questions are related to basically one of the family members as to how they run their private family office. Now I can candidly share with you. I'm the senior most finance executive in Adani Group. I've been there for 11 years. In 11 years, I've not had a business of working meeting with Mr Vinod Adani. The reason is very simple. He's not the executive in the business, and even I am not aware of how he manages his family offices or how XYZ manages their family office. It is completely separate, and many promoters in India have this. Their family offices are completely separate from their businesses, the same thing is here. So basically, you put those six questions aside. The rest of the questions are a direct lift of our own disclosure and converted into misrepresentation and then put into the report.

A: Our first objective was to see when somebody does this kind of stuff. We also want to give confidence that you're dealing with a new India. You're dealing with a properly regulated market with good institutions. The first thing we establish is that the disclosure standards of Indian institutions and corporates are high by this action. There is nothing in that report that comes from research, it comes from our disclosures. Secondly, documentary evidence we provide that they have misrepresented at best and misrepresented facts on top of it. So, now the statement you refer to is related to our legal counsel saying we will evaluate everything, and they are evaluating everything. So what conclusion that legal review reaches will happen over some period of time, but prima facie naturally, they want to pursue, and damage has occurred in India, first and foremost, and people need to be brought to justice in India. We want people to face justice if there are issues in India, but that will be a matter for our own legal advisors to pursue. We have handed them the same report that we've now put on the websites. And therefore, our legal team has that, and they are pursuing everything, and we'll see what they conclude over the coming months.

A: The gross aggregate debt position of the group is just about $30 billion, of which $4 billion we hold in cash, approximately just under $4 billion we hold in cash. And the cash holding is required based on our statutory requirements and some non-statutory discretionary requirements, like we have a policy to maintain maintenance capex reserves, etc. And then the other one is that we also like to retain certain liquidity positions, which is that every company needs to have the — they calculated like this, that for the next 12 months, what is your fixed commitments, and you must hold 1.25 times that fixed commitments in cash. So that way, they calculate, and so we have about four. So our net position of debt, net of cash which we can use, is $26 billion. Against that only $26 billion, our EBITDA at the portfolio level is $8 billion. So we are, give or take, just over three times debt to EBITDA at a group level. And that's the aggregate position. So, on a coverage basis, our total debt service cover is just over three times.

A: In terms of percentage, approximately 23 percent and that's ultimately from a total drawn debt drawn basis that we have currently using out of our gross debt, we would have just over $6 billion to the domestic banking system. The way the domestic bank – it was on sanctioned limit. So on the sanctioned basis, it would be about $9 billion.

A: We don't have immediate maturities in that manner because - anyway that is long term. So about 50 percent of debt is matched to underlying contract. So, we have limited maturity. Now, the new borrowings, which we have to do will be done on the asset based on the ratings. And yes, you can have - like for example, what you're referring to is that can happen if there is a very limited set of investor pool and we are very diversified investor set. So, we have like two good set of 2026 global banks, nine domestic banks, domestic DCM, 144A issue, US private placement issue, we are one of the few Indian companies registered to issue debt in the US, we are SEC registered, one of our companies has gone through SEC audit, which is Adani Green. And so product wise and separate gives us the flexibility, you can have investors fall out because of volatility issue, they might have their own internal criteria on such things. But our pool of investors is about 160. So, the way when we do our issue weight happens is that out of 160 investors on average about 100 bid for our paper, out of which about 50 then subscribe. We might have some investors fallout, some new investors come in. So I don't expect the number of about 160 odd investors that look at our assets change. And if that remains, then we will pay what is the market price based on our ratings.

A: The first thing is that zero percent of Ambuja shares are pledged. We clarified that originally also. What happens is that when you acquire something via holding company structure, there we always give a standard covenant that we will hold X percentage of the asset underneath. That's how we designed the capital structure. So there we have said we will hold 63 percent of Ambuja. Now we are going to end up owning more of it because we've issued warrants and we will settle the warrants and will own more, but that's what we've confirmed. So what happens is that we simply say that we are not selling off our equity, we haven’t sold anything, so it's more linked to the share price, it is linked to the percentage of the underlying asset you hold, which is the same today also. It is independent of the share price. Now, what happens is that under SEBI’s regulation - SEBI just has a heavier regulation which is a good regulation which is simply that please report encumbrance. And if we were to say that we will hold 63 percent under SEBI strict reading of that, it is considered encumbrance. So that gets misinterpreted and got misinterpreted as pledge. That is not the case.

A: Absolutely nothing of that sort will happen at all. Because at a promoter level, we are net lenders to the market.

A: It will actually only take about two seconds for anybody at CNBC to confirm that this is a misrepresentation. So what they have said is that AEL Auditor is a small audit firm. The first thing is I don't like the word small auditor because the person accusing a small firm is a small firm themselves. So, that accusation itself is bizarre. But nevertheless, AEL is a incubator. So it's key thing is how it is looking at its individual businesses. So for airport, for example, auditor is Big Six. In mining, the auditor is Big Six. And anybody who has done any research, like I said, it will take two seconds to know this. So obviously, they knew this. And yet, they went ahead with misrepresentation. They could have said that we understand you have on the assets below actual assets, you have Big Six, why don't you have Big Six on AEL level? That's a legitimate question. But here, it was not a legitimate question. It was not the issue of question, it was a hit job. And the hit job on AEL to sabotage the FPO. And so it became an issue, and then it has overall level. But then we have another policy also, which we would like to share with the viewers, which is that we have nine listed companies, of which, barring one all are Big Six. Then we have another policy, which is that from time to time we do a like last year we did a disclosure review. Now that disclosure review was done across all Adani branded companies. And that was done by Big Six. Then we do a spot review. So last year we picked - in our risk programme, it comes to me - hedging policy review. So in hedging, Big Six accounting firm was appointed and we said please review all our hedging policies. So they do the review. And we do this on a periodic basis. Then our audit committee is 100 percent independent, we are one of the few groups in India that have audit committees 100 percent independent. So there are a series of steps that we have to offer audit integrity. So it's a completely bogus misrepresentation and I think if somebody knows it's not even misrepresentation, if somebody knows, and you can verify in few seconds, it is even more than misrepresentation. It's a deliberate misrepresentation.

A: We maintain it's available whenever SEBI or regulatory can ask they can get it from us, we know that is non-disclosed material information, etc. So we comply with all of that stuff, but we have no specific to and fro on information that we possess because our holdings are fully declared clearly and then matters related in this current sort of this made up report. We have shared our report with the SEBI as well.

A: We continue to support that when the company needs within the requirements. We will not make any long-term decision on short-term volatility. They were disaster for problems in the longer-term, fundamentally the business is exactly the same and its profile is exactly the same and it will return to its profile and it is doing well and we are fully supportive of all of our businesses.