Adani Enterprises FPO: Can India's largest-ever issue sail through?

Adani Enterprises' Rs 20,000-crore follow-on public (FPO) offer received bids for 6,94,804 shares, or 2 per cent, subscription on Day 2 of the bidding process so far on Monday. For India's largest FPO to sail through, Adani Enterprises requires at least 90 per cent subscription. If the Adani FPO fails to garner the minimum subscription by Tuesday, the FPO will be deemed unsuccessful, said Sameer Raina, Principal Associate at Pioneer Legal.

The FPO price band has been set at Rs 3,112-3,276 per share by Adani Enterprises. But despite rising 4.4 per cent in Monday's trade, shares of Adani Enterprises traded at Rs 2,884.00 on BSE. This price was lower than the FPO price band.

Raina said the Adani group can look towards institutional investors and mutual funds to be their white knights because an oversubscription in the institutional category can give the Adani group breathing room for adjusting the oversubscription against undersubscriptions in the retail and non-institutional investor categories.

He noted that an oversubscription in the retail and non-institutional category cannot be adjusted against the undersubscription in the institutional investors’ category. Besides, he noted that  Sebi laws permit revision in the price band, which has to be accompanied by an extension of the bidding period.

"The maximum period for which an FPO can be kept open is 10 working days. But, availing this option can lead to more damage at this stage instead of protecting the shareholder value. One alternative that the Adani group can look at is that the offer can be underwritten to the extent of shortfall in the subscription, which will ensure that the FPO sails through. However, there are conditions imposed by Sebi for underwriting an FPO through book building process," Raina noted.

Adani Enterprises in a filing to BSE said in the event of offer price being lower than anchor investor allocation price, the difference will not be funded to anchor investors. Group CFO Jugeshinder Singh told BT TV that while retail investors are sensitive to share price, long-term institutional, long-term strategic investors do not see change the value of Adani Enterprises post the recent fall.

Singh said the group chose the fund raising mechanism carefully and that the FPO mechanism gave Adani Enterprises the flexibility to fill the book based on the total subscription, which now will be led majorly by institutional and long-term strategic book

The FPO committee is scheduled to meet on February 1 for the approval of offer price and prospectus in relation to the offer. Singh said he was confident the Rs 20,000 crore issue will sail through and that his group was not looking to make any changes with respect to either price band or offer period.

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