Proxy advisory firm Institutional Investors Advisory Services (IiAS) has voiced its concern and recommended investors vote against Adani Green’s proposed preferential issuance of warrants to promoters.

In December, the Adani group company had said that it received its board’s approval for a preferential issue worth Rs 9,350 crore ($1,125 million). The issue price is set at Rs 1,480.75. Each warrant, as per Adani Green's December announcement, can be converted or exchanged for one fully paid-up equity share within 18 months from the allotment date. At the time of subscribing and allotting each warrant, a minimum payment of Rs. 370.19 (per warrant), representing 25% of the issue price, is required.

IiAS has contended that it does not endorse the issuance of warrants and supports upfront equity infusion instead. The ports-to-power group’s green energy unit is set to seek shareholder approval for this move at an extraordinary general meeting on 18 January.

In a note, IiAS, according to Business Standard, criticized the warrant issuance, saying that it allows the promoters to “ride the stock price for 18 months”. The firm also warned that if promoters opt not to subscribe to the remaining 75%, “it could have material implications for the company’s debt repayment/capex plans”.

The firm urged the Adani firm’s promoters to opt for a preferential equity issue instead— “where the equity is brought in upfront, rather than through the warrants route”.

“While we understand that company’s bonds aggregating USD 750 million are set to mature in September 2024, the need to infuse funds in the form of warrants, as against equity, is unclear,” IiAS said in the note.

US-based short-seller Hindenburg Research’s allegations of stock market manipulation by Adani group companies rocked the conglomerate stock prices last January. Despite that, Adani Green continued to command unusually expensive valuations. However, for its future growth prospects, a lot depends on how Adani Green manages its debt. The company, like most others in the group, is highly leveraged. We have written about this in detail here.

On IiAS, this is not the first time that the proxy advisory firm has struck a contrarian note. In November last year, the firm urged Raymond’s independent directors to investigate the assault charges against the company’s chairman Gautam Singhania. In an open letter to Raymond’s five independent directors, IiAS urged the board members to urgently examine the accusations: “Despite such serious and heinous accusations by one board member against another, you have been silent… Your silence can be misconstrued.” For more context, read ‘Your silence can be misconstrued’: Proxy firm warns Raymond’s directors and Will Reliance eventually get to own Raymond?

In October, IiAS had also recommended voting against Ambani scion Anant’s appointment to the Reliance Industries board of directors, citing “governance matters” as the reason to vote against the youngest of Mukesh Ambani’s children.

On the Adani Green issue, it remains to be seen whether IiAS’s note will be heeded to. Past instances have shown that directors have often not sided with its opinion. For more context, read this: The existential dilemma of India’s proxy advisory firms.