Adani Stocks Tumble As Group Seeks SEBI Settlement For Shareholding Violations; What Lies Ahead?

Eight out of ten Adani Group stocks were trading in the red on the National Stock Exchange (NSE) by 11:30 am on December 4, following reports of the conglomerate seeking a settlement with the Securities and Exchange Board of India (SEBI) over alleged public shareholding violations. Adani Green Energy and Adani Total Gas were the most impacted, with shares dropping 3.5% and 2%, respectively.

SEBI Probe into Public Shareholding Norms

The Gautam Adani-led conglomerate has reportedly approached SEBI to resolve allegations dating back to 2020 regarding minimum public shareholding requirement breaches. According to a report by The Economic Times, SEBI issued show-cause notices to Adani Enterprises, Adani Power, Adani Ports, and Adani Energy, accusing them of misclassifying the shareholdings of certain entities as public instead of promoter-linked.

The regulator is said to be seeking Rs 2,500 crore from Adani entities for these violations. In response, Adani Enterprises, along with its director Vinay Prakash and Ambuja Cements director Ameet Desai, have submitted settlement proposals. The settlement applications are reportedly precautionary measures to avoid regulatory penalties while contesting the charges.

Mauritius-Based FPIs

Emerging India Focus Funds (EIFF), a Mauritius-based Foreign Portfolio Investor (FPI), is at the centre of SEBI's investigation. SEBI has alleged that EIFF, along with EM Resurgent Fund (EMR) and Opal Investments, is linked to Adani Group promoters, particularly Vinod Adani, Gautam Adani's elder half-brother.

The investigation claims these FPIs acquired shares in four Adani companies-Adani Enterprises, Adani Power, Adani Ports, and Adani Energy-to appear compliant with public shareholding norms. However, SEBI found evidence of Vinod Adani's influence over these FPIs, including their consistent alignment with Adani promoters on key decisions like related-party transactions and director reappointments.

Despite these findings, the FPIs were categorized as public shareholders rather than promoter-linked entities, allegedly violating SEBI norms.

Settlement Proposals Under Review

In the settlement applications, EIFF proposed a payment of Rs 28 lakh, while Vinay Prakash and Ameet Desai each offered Rs 3 lakh. These filings came in response to SEBI's September 27 notices to 30 Adani-related entities, including Gautam Adani, his brothers Vinod, Rajesh, and Vasant, nephew Pranav (Vinod's son), and brother-in-law Pranav Vora.

Adani Group maintains that the settlement requests are procedural and do not imply guilt. Filing such applications within 60 days of a show-cause notice is standard practice to preserve the option of a settlement, should it become necessary. SEBI has yet to make a decision on the applications.

Global Scrutiny

The Adani Group's troubles are not confined to Indian regulators. Last month, US authorities accused Gautam Adani and senior executives of participating in a scheme to pay $265 million in bribes to secure Indian power supply contracts. Additionally, the group faced allegations of misleading US investors during fundraising efforts.

The Adani Group has categorically denied these accusations, labelling them as "baseless." However, these allegations, coupled with SEBI's ongoing probe, have added to investor unease, as evidenced by the stock performance.

Market Reaction

The regulatory scrutiny and settlement developments have weighed heavily on Adani Group stocks. Adani Green Energy and Adani Total Gas led the losses, while other stocks in the group also saw dips.

Implications for Adani Group

The fallout from SEBI's investigation could have long-term implications for the Adani Group's credibility and market performance. Missteps in adhering to public shareholding norms and potential penalties could not only impact the group financially but also raise questions about its governance practices.