India’s markets 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 over allegations by a US-based short seller against one of the industry’s biggest groups in the land. .
The Securities and Exchange Board of India (SEBI) is investigating any potential violation of India’s securities laws or any conflict of interest in the share sale process, two sources with direct knowledge of the matter said.
The watchdog is investigating the relationship between Adani and at least two Mauritius-based companies, Great International Tusker Fund and Ayushmat Ltd, which participated as lead investors, among others, said the sources, who spoke on condition of anonymity because of the confidential nature of the probes.
Under India’s capital rules and disclosure requirements, any entity associated with a company founder or group of founders cannot apply for the lead investor category. One of the sources said the focus of the investigation would be whether any of the major investors were “connected” to the founding group.
The ports-to-energy conglomerate — controlled by billionaire Gautam Adani, one of the world’s richest men — has seen shares in its seven companies lose more than $100 billion in market value since a Jan. 24 report by Hindenburg Research accused the group of improper use of offshore tax havens and stock manipulation. Adani has denied the allegations.
Last week, group flagship Adani Enterprises withdrew its secondary share offering, the largest ever in India, amid sharp sell-off.
SEBI and Adani Group did not respond to requests for comment on 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 offer, the sources said, adding that SEBI had approached the two companies 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.
Hindenburg alleged that a private entity of Adani had a small ownership stake in Monarch – having previously worked as the group’s bookkeeper – saying “this close relationship appears to present a clear conflict of interest”. The short-seller also said Mauritius-based fund Elara invested 99 percent of its market value in three Adani shares.
Adani said Monarch was selected for the pre-sale of shares “due to its credentials and ability to enter the retail market”. On Elara, Adani said “innuendos” that the company is in any way connected to the conglomerate’s founders are incorrect.
When contacted before this story was published, Monarch referred Reuters to a Feb. 3 exchange announcement that said the Adani entity had held an “insignificant,” 0.03 percent stake in the company since 2016. The Reuters news agency could not confirm this from public records. .
After the story was published, Monarch said in a stock market filing that it had not invested in the Adani share offer prior to its cancellation and that there was “absolutely no conflict of interest whatsoever”.
Monarch said in a filing that the Reuters report “contains half-truths that paint an inaccurate picture.” The company did not respond to requests for details on the alleged inaccuracies in the reports.
Elara did not respond to a request for comment on the regulator’s investigation and Hindenburg’s claims.
Meeting with Modi’s office
Advocate General Tushar Mehta, representing the markets regulator, told India’s top court at a hearing on Friday that, in relation to investor losses following the publication of the Hindenburg Research report, “SEBI is on top”.
Shares in Adani Enterprises extended their losses to 5 percent in afternoon trading on Friday after the Reuters report, after falling 2.5 percent earlier in the day. Shares ended the day down 4.1 percent.
In recent days, the fallout from the accusations of Hindenburg, who may have profited from the decline in Adani Group assets, has repeatedly come up as a cause for concern at the national level, including within Prime Minister Narendra Modi’s office, two government officials said.
Opposition parties protested in parliament for an independent investigation into Hindenburg’s accusations.
The federal corporate affairs ministry, responsible for regulating Indian businesses, briefed officials in Modi’s office and was in touch with SEBI, the market regulator, one of the officials said. Reuters was unable to determine the specific details of the talks, which have not been previously reported.
On February 2, the ministry launched an audit of Adani’s past financial statements.
Modi’s office and India’s Ministry of Corporate Affairs did not respond to requests for comment on the regulatory probe into Adani following the publication of the Hindenburg report.
The conglomerate had earlier said Hindenburg’s claims of stock manipulation had “no basis” and stemmed from ignorance of Indian law. He said he had always made the required regulatory disclosures.
Indian Finance Minister TV Somanathan on Saturday described the Adani issue as a “storm in a teacup” from a macroeconomic perspective.