Gautam Adani
Chairperson of Indian conglomerate Adani Group, Gautam Adani, speaks at the World Congress of Accountants in Mumbai on November 19, 2022. Image Credit: AFP

Adani Enterprises Ltd., the flagship firm of Asia's richest person, is considering issuing at least $1.8 billion in new shares, according to people familiar with the matter.

Billionaire Gautam Adani's conglomerate is working with advisers on the follow-on issue and could sell the shares as soon as next year, the people said, asking not to be identified as the information is private. The sale could raise as much as $2.4 billion, one of the people said.

The issuance will test investor appetite for a stock that has had outsized gains, compounded by lower liquidity relative to peers and sparse analyst coverage. The conglomerate has previously attributed the small free float to the Adani family holding about 75 per cent of Adani Enterprises, and earlier this year said it is working on plans to increase the free float.

Shares in Adani Enterprises have surged 132 per cent in the year to date, giving it a market value of about $55 billion. India's NSE Nifty 50 index - it added Adani's flagship in the gauge in September - has risen just 5.1 per cent over the same period. Adani Enterprises is trading at a valuation of 164 times its one-year forward earnings. By comparison, Nifty is trading at a multiple of about 20 times and Reliance Industries Ltd. -India's largest firm by market value - at about 21 times, according to data compiled by Bloomberg.

Deliberations are ongoing and details of the fundraise including size and timing could still change, the people said.

Representatives for Adani Enterprises declined to comment. The company's board will meet Nov. 25 to discuss raising funds, the company said in an exchange filing Tuesday.

Tackling Debt

The ports-to-power conglomerate is entering businesses "with a mindset to dominate" those sectors, making its stocks "a really good proposition" in the longer term, according to Mohit Nigam, a fund manager with Jaipur-based Hem Securities Ltd. "Only problem is debt and that is why foreign, domestic institutional investors initially hesitated in entering Adani stocks," he said. "But, those who invested made really good returns."

The share sale, if it goes through, will boost the stock's liquidity as well as improve its debt ratios. The research firm, CreditSights, had red-flagged the Adani Group's "elevated" leverage in September, which the conglomerate had pushed back against, calling their leverage ratios "healthy."

Adani's group is looking to raise at least $10 billion in new debt over the next year as the conglomerate seeks to refinance its high-cost borrowings and fund projects in the pipeline, Bloomberg News reported last month. The effort could start as soon as the ongoing December quarter, people familiar with the matter have said.

The planet's third richest person has made forays into a diverse array of businesses from green energy to airports, cement, digital services and data centers. Adani spearheaded a $10.5 billion acquisition of Holcim Ltd.'s local cement assets, India's second biggest deal of the year. The firm is also making a bid to take over New Delhi Television Ltd., with the disclosure of an indirect 29.2 per cent stake in the broadcaster triggering an open offer that launched Tuesday and will run until Dec. 5.

Adani's group has attracted a lot of scrutiny over its debt-heavy balance sheet and not enough appreciation of its cash-flow generation ability, according to M&G Investments (Singapore) Pte.

"The businesses Adani is incubating and operating in - ports, airports, rail, logistics - they are real businesses that generate cash," Vikas Pershad, a Singapore-based fund manager at M&G, said in an interview, adding that these units will grow as India grows. "They are at the right place at the right time."