Holding more than 75 per cent stake in a listed company would allow the promoter group to unfairly and illegally manipulate share price by creating an artificial share scarcity in the market.
Just six months after American short-seller Hindenburg Research came out with a damning report on Adani Group, the Gautam Adani-led conglomerate faced further set of allegations from OCCRP this week. A new report from the Organized Crime and Corruption Reporting Project (OCCRP) again raises questions around alleged violations of minimum public shareholding in Adani Group companies.
In a response statement, Adani Group said on Thursday, “As per the Expert Committee appointed by the Hon’ble Supreme Court, there is no evidence of any breach of the Minimum Public Shareholding (MPS) requirements or manipulation of stock prices.”
Following the Hindenburg report that came out on January 24, the Supreme Court had directed market regulator Securities and Exchange Board of India (SEBI) to probe some of the accusations levelled by the short seller. This included an investigation into potential non-compliance of Securities Contracts (Regulation) Rules 1957 by Adani Group companies.
According to existing rules, every company listed on Indian bourses has to have at least 25 per cent public shareholding. In other words, the promoter group of a company cannot hold more than 75 per cent of the company’s shares, failing which the company will be found in violation of Rule 19A of the Securities Contracts (Regulation) Rules 1957.
The minimum public shareholding requirement is meant to help the market discover the ‘fair price’ of any company’s share. Holding more than 75 per cent stake in a company would provide the promoter group with an unfair way to manipulate share price by creating an artificial scarcity of the share in the open market.
In turn, this will help the promoter group boost its companies’ share price and shore up market value. Further, such artificially inflated market capitalisation will create positive sentiment around the concerned stocks in the market and even make credit access for business expansion easier.
When Hindenburg accused Adani Group of the “largest con in corporate history”, it outlined a system of offshore entities that allegedly worked in tandem with Adani Group promoters to boost the share prices of Adani companies. In the newly released OCCRP report, these allegations have been beefed up with further details: the names of two foreign investors who reportedly used an investment fund in Bermuda to buy Adani company shares starting in 2013.
Nasser Ali Shaban Ahli of UAE and Chang Chung-Ling of Taiwan are said to be long-time associates of Vinod Adani, the brother of Adani Group chairman Gautam Adani. According to documents accessed by OCCRP, by January 2017, the investor duo had accumulated 13 per cent of all shares available for public trade in three out of the four Adani companies listed at that time.
In March this year, Adani Group had revealed that Vinod Adani is part of the ‘promoter group’ for several of the conglomerate’s companies. Several links between Vinod Adani and Chang Chung-Ling were also revealed in the Hindenburg report earlier this year.
The question posed by the OCCRP report is whether Chang and Ahli acted as dummy fronts for Adani Group’s promoters by funneling money back into Adani stocks. Such a situation would imply that Adani Group was in repeated violation of minimum public shareholding requirements in India. So far, the conglomerate has denied any wrongdoing.
“We have complete faith in the due process of law and remain confident of the quality of our disclosures and corporate governance standards,” an Adani spokesperson said in response to the OCCRP report.