FPO pricing, Adani Enterprises shares fell as much as 4.7%.

Adani Enterprises (AEL) shares fell 4.7 per cent on Thursday after the company reduced the price band for its follow-on public offering (FPO) from 9 per cent to 13 per cent. The stock closed marginally at ~3,462, down 3.7 per cent from the previous day’s closing price.

AEL has specified a price band of Rs 3,112-3,276 per share for its Rs 20,000 crore FPO. Retail investors applying for shares worth less than Rs 2 lakh are getting an additional discount of Rs 64 per share.

Selling pressure is not uncommon during a follow-on share sale as arbitration traders seek to sell already documented shares in the secondary market and subscribe to discounted shares. However, this strategy will not be as successful during Adani’s FPO, which will be open from January 27 to 31.

Analysts said the Gautam Adani-led firm had hit a masterstroke by issuing partially paid-up shares, which would be trade separately till fully converted.

“A simple arbitration strategy will not work in this FPO. Technically, you cannot trade in the secondary market and use the same number of shares in the FPO. The partially paid shares will be converte into fully paid ones in 18 months.

AEL is boosting Rs 10,000 crore in the first tranche. The remaining amount will be raise from investors through one or two additional instalments over 18 months. Till then, the partially paid-up shares of AEL will be trade separately on the exchanges, as was the case with Reliance Industries (RIL) following its ~53,124-crore rights issue in 2010.

Analysts said the partially paid-up shares of AEL will deal at a premium-to-intrinsic value as long as the fully paid-up shares are in the money (above the FPO price).

“FPOs subscribing to partially paid-up shares will lock themselves in at value. Subsequent payments will have to be complete at a later date. Technically, the interest cost gets embedded in the pricing,” explained an analyst, giving the example of RIL, whose partially paid-up shares were trading at the double their intrinsic value in 2020.

In contrast to RIL, AEL has not yet determined the dates for the call for additional tranches. Just 25% of the Mukesh Ambani-led company’s required issuance, scheduled in May 2020, gathered in the first tranche. The remaining sum will be divide into 25% in May 2021 and 50% in November 2021.

“With no fixed date for the call option, the company will have the flexibility. If the price of the fully-paid shares falls below the FPO price, the company may delay the date of movement of the call option.

When asked if Volatility is a concern to raise Rs 20,000 crore in one go, Adani Group Chief Financial Officer Jugshinder Singh said, “We cannot make decisions based on short-term Volatility. Short-term fluctuations in share prices Volatility can affect us. We aim for long-term capital formation.

Adani Enterprises is the biggest listed corporation incubator in the country and generates businesses across four key sectors – Energy & Utilities, Transport & Logistics, and Consumer and Primary Industries.

A green hydrogen ecosystem, data centres, airports, highways, food/FMCG, digital, mining, defence, and industrial production are all currently part of its business portfolio. The business also utilises market potential in the data centre, green hydrogen, and aviation industries.

AEL is currently building the Navi Mumbai airport and operating and managing seven airports, including Mumbai, Ahmedabad, Lucknow, Mangaluru, Jaipur, Guwahati, and Thiruvananthapuram.

The business intends to invest USD 50 billion in the green hydrogen ecosystem over the following ten years to produce up to 3 million tonnes of green hydrogen. In addition, it plans to expand its solar module manufacturing capacities to 10 GW per annum at the Mundra SEZ in Gujarat.

Adani Group said on Thursday it has no plans to enter the country’s telecom sector. Nevertheless, it plans to enter the water segment as it is a key element of its core infrastructure business.

Scarlet Samson