Adani Enterprises share price dips over 1% after six arms get SEBI show-cause notices over Hindenburg report

Adani Enterprises' share price was down more than 1 per cent on BSE on May 3, a day after the company disclosed the receipt of two show-cause notices (SCNs) from the Securities and Exchange Board of India (SEBI) during the quarter ending on March 31. 

Six Adani group companies have received show-cause notices (SCNs) from SEBI for alleged violations of related-party transaction rules and non-compliance with listing regulations in the quarter ending March 31, 2024.

The SEBI notices to the six companies are part of an investigation that followed allegations by short seller Hindenburg Research of corporate fraud and stock price manipulation against Adani Group in January 2023. Despite Adani's vehement denials of all allegations and any wrongdoing, the report triggered a market collapse that erased about USD 150 billion from the group's market value at its lowest point.

Most of the group stocks have since recovered as the group devised a comeback strategy.

Adani Enterprises' share price was down 1.52 per cent at ₹2,990.95 on May 3 at 3:00 pm on BSE.

The company said following the Hindenburg report published on Adani Group companies in January 2023, Adani Enterprises undertook a review of transactions referred to in the short-seller's report (SSR) in April 2023 through an independent assessment by a law firm.

On January 3, 2024, the Supreme Court disposed of all matters in various petitions, including those related to separate independent investigations concerning the allegations in the SSR. Additionally, the top court directed SEBI to complete the remaining two investigations, preferably within three months, and to bring its investigations (including 22 already completed) to a logical conclusion in accordance with the law, as announced by Adani Enterprises in an exchange filing on May 2.

During Q4, "the Parent Company received two SCNs from SEBI alleging non-compliance of provisions of the Listing Agreement and LODR Regulations pertaining to related party transactions in respect of certain transactions with third parties and validity of peer review certificates of statutory auditors with respect to earlier years," the company stated in the filing.

The Group's flagship companies, Adani Enterprises, Adani Ports & Special Economic Zone (APSEZ), Adani Power, Adani Energy Solutions, Adani Total Gas, and commodities firm Adani Wilmar disclosed information in their March quarter and FY24 financial results notes about the SEBI notice, according to a PTI report.

The companies asserted that there is no material non-compliance with applicable laws and regulations and no material consequential effect.

However, the auditors of the companies, except for those of Adani Total Gas and Adani Wilmar, issued a qualified opinion on the financial statements, suggesting that the outcome of the SEBI investigation might impact future financial statements, PTI reported.

Adani Green Energy has yet to announce its earnings, while ACC and Ambuja Cement reported that they have not received any notices from SEBI on the matter and there were no open issues relating to them and any non-compliance with applicable regulations.

What is a show-cause notice?

A show-cause notice is a formal request for an entity to explain why legal action should not be taken against them. Adani Enterprises mentioned in its earnings statement that an SSR had made certain allegations against some of the Adani Group companies.

The matter also reached the Supreme Court, which observed that SEBI was investigating the allegations. The apex court also formed an expert committee to investigate and recommend measures to strengthen existing laws and regulations.

The committee, in its May 6, 2023 report, found "no regulatory failure in respect of applicable laws and regulations," and SEBI concluded its investigations in 22 of the 24 matters as per the status report dated August 25, 2023, to the Supreme Court.

The company noted that in April 2023, the parent company had undertaken a review of transactions referred to in the SSR through an independent assessment by a law firm, which confirmed "that (a) none of the alleged related parties mentioned in the SSR were related parties to the Parent Company or its subsidiaries, under applicable frameworks; and (b) the Parent Company is in compliance with the requirements of applicable laws and regulations."

"Based on the above independent assessment, the Supreme Court order and the fact that there are no pending regulatory or adjudicatory proceedings as of date, except as mentioned above, the management concludes that there is no material non-compliance of applicable laws and regulations," it added.

APSEZ said during FY24, "SCNs were received from SEBI alleging (i) non-compliance of provisions pertaining to related party transactions under applicable regulations including Listing Agreement and LODR Regulations with regard to transactions entered in earlier years with certain parties..."

"The allegations are that the company has not obtained the requisite approvals, and has not made the required disclosure in financial statements/annual report (ii) Not recalling security deposits against terminated contracts leading to not using the funds for the company's core business purposes and thus not complying with the company's code of conduct," it said.

It added that the amounts due in respect of these transactions, along with interest thereon, have been received in full before March 31, 2023, and there are no transactions with these parties in the current financial year, and there are no losses suffered. Adani Enterprises' share price was down 1.52 per cent at ₹2,990.95 on May 3, at 3:00 pm on BSE.group