Investors Get Ziltch? Rs 30,000 Crore Stake Sale In Listed Companies By Adani Group’s Promoters; NCLT Nod To Adani Power To Acquire Lanco Amarkantak Power

Adani Group’s Rebalancing Act, But What’s The Plan And Where Does It Leave Investors?

The promoters of the Adani Group are undertaking a significant portfolio rebalancing exercise. The goal is to achieve a consistent holding of 64-68% across their various listed firms.

However, to do this, they plan to pare stakes in some companies while increasing them in others.

The process is set to begin with the sale of a 2.8% stake in Ambuja Cement for $500 million, which is expected to take place through a block deal; following this, another block deal of a similar magnitude is likely to occur in the coming months.

Likewise, the promoters are also aiming to generate ₹8,000-10,000 crore
by selling approximately 3% of their stake in Adani Power before the end of the year.

On the other hand, they intend to increase their stake in Adani Green Energy by 3% in the next few weeks, as they currently hold 57.5% of the company.

Why The Rebalancing Act?

If one were to look at this rebalancing strategy it can be compared to the shareholding structure of large US-listed utility companies, which typically have a mix of retail and long-only shareholders —the promoters seem intent on mimicking this structure, potentially to create a more stable and diverse shareholder base.

A Closer Look, What’s in It for Investors?

However, the entire balancing act has left the broader investor community at a crossroads, despite the strategic vision presented by the Adani Group, the stake sale has raised concerns about the impact on the investors, particularly minority shareholders.

Now, block deals, the primary method being used for these transactions, are typically conducted between large institutional investors meaning that retail investors and smaller shareholders are effectively excluded from participating in these transactions, leading to a lack of transparency and potential missed opportunities.

Therefore, for investors who have stood by the Adani Group through its turbulent periods—especially, the fallout from the Hindenburg Research allegations earlier this year—this rebalancing act offers little in terms of direct benefits.

The accusations of fraud and stock price manipulation by Hindenburg Research led to a dramatic plunge in the group’s market capitalization, wiping off as much as $150 billion at one point.

Although since then the shares have recovered, the promoters’ current strategy appears to be focused more on maintaining control and financial stability rather than rewarding the loyalty of their shareholders.

The Bigger Picture Of What Will Be The Financial Implications and Future Prospects

The Adani Group’s decision to sell stakes in some companies while increasing holdings in others also comes against the fact of significant financial obligations.

The group faces loan repayments totalling $3.1 billion, borrowed from international banks for the acquisition of Ambuja and ACC; as these repayments come due, the group is likely to refinance the debt with fresh borrowings rather than paying down the debt.

Therefore, this strategy of refinancing, along with the sale of stakes, might be a way to ensure liquidity and manage financial obligations without diluting control over key assets.

Last month, Adani Energy Solutions raised $1 billion through a qualified institutional placement (QIP), marking the first fundraising effort after the Hindenburg accusations.

In May, the board of Adani Enterprises approved raising up to ₹16,600 crore through another QIP.

These fundraising efforts, along with the current stake sales, suggest a focus on strengthening the financial backbone of the group. However, for the common investor, the tangible benefits remain unclear.

The Investor’s Perspective, Are They Getting Zilch?

The current strategy of the Adani Group has sparked debate over whether minority shareholders are being adequately considered.

The rebalancing act, while strategically sound from a corporate governance perspective, offers little in terms of direct benefits to retail investors.

The increase in stock float due to the block deals may lead to greater liquidity in the market, but this does not necessarily translate into gains for individual shareholders.

Thus, there is a growing sentiment among investors that the Adani Group should consider more inclusive strategies that directly benefit all shareholders.

One such approach could be to offer a rights issue to existing shareholders, allowing them to purchase additional shares at a discounted rate; doing this would not only reward the loyalty of investors but also provide them with an opportunity to benefit from the group’s future growth.

Moreover, the group’s management could also explore other avenues, such as increasing dividends or initiating stock buybacks, to enhance shareholder value.

These measures would demonstrate a commitment to the interests of all shareholders, not just the institutional ones involved in block deals.

Adani Power Receives NCLT Approval to Acquire Lanco Amarkantak Power for ₹4,101 Crore

Meanwhile, the Hyderabad bench of the National Company Law Tribunal (NCLT) has approved Adani Power Ltd’s resolution plan to acquire Lanco Amarkantak Power Ltd (LAPL) through the insolvency resolution process.

Adani Power has committed to paying ₹4,101 crore to acquire LAPL, which has admitted liabilities amounting to ₹15,633 crore.

In a stock exchange filing on Thursday, Adani Power stated, “The successful acquisition and implementation of the resolution plan for LAPL will strengthen APL’s position as India’s leading private sector power producer, with a combined operational power generation capacity of 15,850 MW.”

Lanco Amarkantak Power, a distressed company, operates a 600 MW thermal power plant located in Pathadi Village, Korba District, Chhattisgarh.

The company has long-term power purchase agreements with Haryana and Madhya Pradesh through Power Trading Corporation Ltd.

Additionally, LAPL has a long-term Fuel Supply Agreement for 2.784 MMT with Coal India Ltd’s subsidiary, South Eastern Coalfields Limited (SECL). The company is also working on a 2×660 MW (1320 MW) expansion under Phase II.

LAPL owes approximately ₹14,631 crore to its secured financial creditors, including major lenders like Power Finance Corporation, Rural Electrification Corporation, IDBI Bank, Indian Overseas Bank, Axis Bank, and Life Insurance Corporation of India. Despite its financial difficulties, LAPL has ₹1,800 crore in cash reserves from operations in the first phase.

Lanco Amarkantak Power was admitted to corporate insolvency proceedings in September 2019, but the resolution process faced delays for various reasons.

In January 2022, lenders rejected a ₹3,000 crore offer from Twin Star Technologies, a company owned by metals magnate Anil Agarwal, deeming it too low.

When the sale process was restarted, Adani Power, Reliance Industries, and a PFC-led consortium showed interest in acquiring LAPL.

However, both Adani Power and Reliance Industries withdrew from the auction, citing violations in the sale process, leaving the PFC-led consortium as the sole bidder with a ₹3,020 crore offer.

In January 2023, 95% of the lenders by value voted in favor of the PFC-led consortium’s plan, but the NCLT did not approve the plan for several months.

Later, Adani Power submitted an unsolicited offer of ₹3,650 crore, which it subsequently increased to ₹4,101 crore, leading to the current approval by the NCLT.

The Last Bit, Need For A Balance

The ₹30,000 crore stake sale by the Adani Group’s promoters is a substantial shift in the group’s strategy.

The Adani Group rebalancing act may be sought to create a more stable and diversified portfolio, however, it leaves minority shareholders with little to gain in the short term.

Therefore, in light of this step, if the management considers the interests of all stakeholders the Adani Group can ensure that its rebalancing act does not leave its loyal investors empty-handed, ensuring that the gains from its growth story are shared by all.