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Adani empire rattled by cancelled share sale

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In today’s newsletter:

  • Adani calls off its share sale

  • Unilever’s unexpected new boss

  • Britishvolt bidding kicks off

Adani hands back investors’ cash

For a moment on Wednesday it appeared that Gautam Adani was prevailing over a short-seller attack on his empire. Then came the shocking news: Asia’s former richest person pulled the plug on a critical $2.4bn share sale of his industrial group.

The well-connected industrialist had called on influential Indian tycoons including Sajjan Jindal, the billionaire chair of conglomerate JSW, and Sunil Bharti Mittal, chair of Bharti Enterprises to support the share offering. Its success was being closely watched as a measure of whether Adani could stem the fallout from allegations of fraud levelled by Hindenburg Research last week.

But the market had other plans.

 Gautam Adani speaks at an event
Gautam Adani © REUTERS

The value of Adani Enterprises continued to plunge even after the share sale was closed late on Tuesday, forcing Adani to decide whether to proceed and saddle investors with immediate losses, jeopardising his ability to raise capital in the future. Instead, he backtracked and cancelled the sale.

The surprise decision only accelerated the panic over the financial health of Adani’s empire. Market losses have now surpassed $90bn as scepticism builds, causing Adani to be supplanted by Mukesh Ambani as India’s richest man.

A number of Adani Group dollar bonds also took a hit on Wednesday. Senior unsecured notes issued by Adani Ports, maturing in July 2024, fell more than a fifth to trade below 70 cents on the dollar — a threshold widely perceived as a distress signal.

Adani Enterprises stated in a regulatory filing that because of “extraordinary” fluctuations in its share price, its board “felt that going ahead with the issue will not be morally correct”.

The group vehemently denies Hindenburg’s claims.

It is now working with its bankers to issue refunds, it added. Investors who backed the sale include Abu Dhabi’s International Holding Company, which pledged $400mn to the offering earlier this week, and London-listed Jupiter Asset Management.

“He has to keep a clean record,” one person with knowledge of the terms of the deal said of his decision to return the funds.

It’s also possible that some of its backers were having second thoughts, as Lex wondered aloud.

Line chart of Rs per share showing Adani Enterprises shares tumble

At the heart of the billionaire’s troubles is the debt-fuelled strategy that has bankrolled his minor commodities business into an industrial behemoth.

“Either you sit on the pile of cash or you continue to grow,” he told the FT a decade ago. “There is no other way you can do it.”

That ethos appears not to have changed. But what Hindenburg sees as “extreme leverage”, Adani views as a time-tested model to fuel its ambitious growth plans.

Adani disputes it is overleveraged, saying in a response to Hindenburg on Sunday that “leverage ratios of Adani Portfolio companies continue to be healthy and are in line with the industry benchmarks of the respective sectors”.

It also says it is in the process of deleveraging. With the share sale off, it’s not yet clear how it plans to group debt ratios. To dispose of its own $20bn in net debt in 2020, Adani’s rival, Mukesh Ambani of Reliance Industries, raised equity from global investors including Facebook, KKR and Mubadala.

In the aforementioned interview from 2013, Adani was pressed by the FT on what was a common criticism of him at the time — his links to Gujarat’s then-chief minister Narendra Modi. Their relationship has attracted even more scrutiny since Modi became prime minister.

While Adani has since acknowledged that aligning business interests to government policy has given him a “tailwind”, he has always rejected any impropriety.

“Modi is helping industries through policy, not allowing any nonsense into the system,” he told the FT all those years ago. Now is as good a time as any to prove that’s true.

Unilever sends in the clean-up crew

For many onlookers, the news that Hein Schumacher would be taking over as Unilever’s new boss prompted a similar thought: who?

But the “not obviously ‘box office’” appointment, as Jefferies analyst Martin Deboo described it, wasn’t intended to uphold the status quo.

Hein Schumacher
Hein Schumacher © via REUTERS

The consumer goods group had “lost the plot” by attempting to flaunt its sustainability credentials at the expense of running the business, according to veteran fund manager Terry Smith, whose Fundsmith is one of Unilever’s largest shareholders.

Its failed attempts to buy UK drugmaker GlaxoSmithKline’s consumer healthcare business, a politically fraught fight with Ben & Jerry’s and the arrival of the billionaire activist Nelson Peltz on Unilever’s doorstep all fuelled the fire burning beneath the feet of chief executive Alan Jope.

As Jope’s sooner than anticipated departure ticks closer, shareholders have signalled that they’re ready for a clean start. Schumacher, only the second outsider to lead the company (as long as you don’t count his time spent in a Dove soap factory as part of a Unilever graduate traineeship) represents just that.

The Dutchman who will uproot his life in the Utrecht town of Amersfoort, where FrieslandCampina, the dairy co-operative he previously helped run is based, was never the expected choice to take over the UK’s fifth-largest public company.

He beat out contenders including Dave Lewis, chair of the GSK spin-off Haleon who earned the nickname “Drastic Dave” for his cost-cutting during his 27 years at Unilever. Lewis had been backed by some shareholders, a person with knowledge of the process told the FT.

Unilever also sounded out Diageo’s chief operating officer Debra Crew and several senior managers at leading US-based rivals.

But for what Schumacher lacks in corporate clout, he makes up for with powerful allies. He’s got the backing of Peltz, who was previously an activist at Heinz, where the Dutch executive worked for more than a decade.

Winning over Unilever’s other shareholders will take time, though his background in finance, in contrast to Jope’s expertise in marketing, comes as plus.

Those on the fence including Unilever shareholder Flossbach von Storch, which said it would “talk to the management very soon” to get a feel for the new boss, will be watching carefully.

Britishvolt bidders head off to the races

After two weeks of cajoling, considering and — in many cases — fundraising, prospective bidders placed binding offers to buy Britishvolt on Wednesday night.

The administration process for the husks of the battery start-up saw initial interest of more than 50 might-be saviours whittled down to just a handful.

Earlier in the week, the company’s remaining management team presented a “Britishvolt 2.0” plan to possible investors about how the remains of the business, including prototype batteries and a factory site in Northumberland, might be best used.

EY, which advised the company before its collapse two weeks ago and also ran the administration, is aiming to wrap the process before the end of the week when the venture’s last reserves of cash will be depleted.

Among those considering placing offers was Greybull, a private equity firm most commonly associated with the collapses of British Steel and airline Monarch. Other takers include a band of shareholders whose late bid to prevent the company’s demise two weeks ago was scotched by creditors; the company’s enigmatic ousted founder Orral Nadjari; DeaLab, an Indonesia-linked fund run by a former JPMorgan Chase banker; and Australian battery start-up Recharge Industries.

Orral Nadjari gestures in an interview
Orral Nadjari’s ebullient style made relations with the UK government and some Britishvolt investors difficult © Bloomberg

Although bids are expected to come in the low tens of millions, any buyer wanting to revive the technology will need to fund further development and eventually commercialisation, until carmakers, several of whom have received samples, decide to place orders.

In an interview with the FT last year, the controversial Nadjari had the following to say a month after parting ways with Britishvolt:

“Was I the perfect CEO? No, definitely not. Do I have a lot to learn from my journey? Yes. But am I always going to protect my baby? Of course I am.”

Let the bidding begin.

Job moves

  • Blackstone has promoted Wesley LePatner, chief operating officer of its core+ real estate business, to global head of the unit. He succeeds Frank Cohen, who will now be chair of that fund and remain in his current role as chair and CEO of the private equity firm’s Breit real estate fund.

  • Satish Rai is retiring as chief investment officer of Omers, one of Canada’s largest pension funds. He will be replaced by global head of capital markets Ralph Berg in April.

  • Abrdn has poached Peter Branner, a senior executive from Dutch pension investor APG Asset Management, as chief investment officer as the fund group attempts a turnround.

  • Euleen Goh will step down as deputy chair of Shell following its annual general meeting in May, when board director Dick Boer will take her place.

  • Private equity firm Hg has named former Vista Equity Partners dealmaker Alan Cline as head of North America.

  • Davis Polk has hired James Dougherty, previously Jones Day’s global chair of M&A, as an M&A partner in New York.

Smart reads

Out of the frying pan, into the fire A court decision involving McDonald’s former “global chief people officer”, who was fired following allegations of sexual misconduct, could become a cautionary tale for corporate America, the FT reports.

M&A rodeo Any investor that hitches their wagon to cable cowboy John Malone is in for a bumpy ride. Reuters’ Breakingviews digs into the avid dealmaker’s latest financial manoeuvre.

Content is king Streaming services’ insatiable appetite for documentaries has led to a deluge of content. A reckoning has now come for an industry already grappling with problems, New York Magazine writes.

News round-up

Darktrace responds to short seller allegations on accounting practices (FT)

Chelsea FC’s transfers splurge pushes Premier League to new spending record (FT)

KKR set to make offer for Telecom Italia’s fixed-line business (FT)

Instagram founders launch Artifact to rival Twitter and tackle misinformation (FT)

Silver Lake mulls takeover of SAP-backed software firm Qualtrics (Bloomberg)

Vodafone/Elliott: activist seeks an opportunistic gain from tower sale (Lex)

NatWest boss refuses to attend parliamentary hearing (FT)

Breit only met a quarter of January’s redemption requests (Alphaville)

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