Thread by @FinEklavya

Recent Fall in Adani Stocks!

Decoded! 🕵️

@suchetadalal @dmuthuk @Gautam__Baid @Prashanth_Krish @Ajay_Bagga @AvadhMaheshwar2 @darshanvmehta1 @caniravkaria @divyachawla0093 @tycoonmindset05

🧵👇

The last year has been one hell of a ride for the shareholders of the Adani Group companies. The stock prices of all six entities have given multi-bagger returns to its shareholders rising in the range of 2x-10x.

In the process, Gautam Adani managed to become the second richest man in Asia with a net worth of more than $76 billion.

Let’s compare the past performance of group companies with their stock prices.

Revenue and PAT performance of group companies of last 5 years:

Improved performance of Group Companies in the last one year has led to a massive increase in stock prices.

The Shakedown

- Ever since Monday, 14th June 2021, the confidence of thousands of shareholders of Adani Group companies has been shaken with the group losing a combined market cap of more than 1.5 lakh crore. (~ 17% of total Market Cap of Adani Group)

What really happened?

- Recently, SEBI has increased diligence on the KYC norms for Mauritius-based fund houses.

- That means these funds must comply with stricter regulatory norms.

- The foreign funds that were invested in Adani group companies were all based out of Mauritius.

- The names of the investment funds are:

1.Elara India Opportunities Fund
2.Albula Investment Fund
3.Cresta Fund
4.Vespera Fund
5.APMS Investment Fund
6.LTS Investment Fund

- Interestingly, 95% of capital held by these investment funds is invested in Adani Group companies.

- These fund houses have continued to hold their positions despite a dream run in Adani stocks in the last one year.

- Recently, NSDL had freezed three of these fund houses.

- The names of these fund houses were Albula Investment Fund, Cresta Fund and APMS Fund.

- These funds held around 43,500 crores worth of Adani stocks.

Why did NSDL freeze these fund houses?

- Usually, an investment fund is freezed when it doesn’t comply with the country’s regulatory norms.

- One peculiar thing about these fund houses is that they all have the same registered address and don’t even have a website.

- SEBI asked these fund houses to furnish some required information. But even after repeated warnings, these funds failed to comply with the norms.

- Thus, SEBI freezed these fund houses on non-compliance of their regulatory norms.

Why has SEBI increased diligence on Mauritius-based Fund Houses?

- The fund houses based out of Mauritius have been notorious for round-tripping of funds, money laundering and terror funding.

- Round tripping refers to the money that leaves the country through various channels and then makes its way back into the country often as foreign investment.

- This mostly involves black money and is allegedly used for stock price manipulations.

How does it work?

- The promoters send the money to foreign countries through various channels.

- They create a Special Purpose Vehicle (SPV) and use these funds to buy their own company’s shares.

- The rise in share prices leads to increased valuation of the listed company. This helps the company raise capital from the market via Banks or stock issues.

- Because of rampant illegal manipulations, Mauritius based fund houses have caught the eye of the ‘Financial Action Task Force’.

- The FATF has already put Mauritius on the grey list and asked them to mend their ways.

- If Mauritius doesn’t take the required steps then they may get blacklisted which makes a country an outcast in the global economy.

- The countries which have been blacklisted are: Iran, North Korea, Syria and Cuba.

- So, investors should be wary of companies where a significant stake is held by foreign fund houses based out of Mauritius.