Adani faces deadline as fraud allegations scare investors

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Time is running out for Gautam Adani as India’s top tycoon and Asia’s richest person, confronts US short seller claiming he “uncovered evidence of brazen accounting fraud, stock manipulation and money laundering” amounting to “the biggest scam in the history of the company” at Adani. business empire.

Adani companies lost $20 billion in market value on Friday and another $17 billion on Monday, bringing their losses to $68 billion since Hindenburg Research’s January 24 report, as shares of the seven Adani Group subsidiaries listed on the Indian stock market plunged.

Capital losses could deepen further if a crucial equity offering by Adani Enterprises, the conglomerate’s flagship company, fails to meet its fundraising target of $2.5 billion when it closes on Tuesday. The offering, launched the day after Hindenburg’s report, was only 2% subscribed before Abu Dhabi’s International Holding announced a $400 million investment on Monday. The same investment group controlled by the emirate’s royal family invested nearly $2 billion in Adani companies last year.

US short seller Hindenburg Research has accused Indian conglomerate Adani Group of fraud. Adani companies, controlled by Asia’s richest man, have lost $68 billion in market value over the past week. as the conglomerate seeks to reduce its debt burden. Adani is a close ally of Indian nationalist Prime Minister Narendra Modi, and his companies have won major government contracts. Hindenburg has previously targeted electric vehicle maker Nikola, whose founder was later found guilty of defrauding investors.

At the heart of Hindenburg’s allegations is his claim that Adani and his family covertly control a network of offshore funds whose holdings of public shares of Adani companies nominally satisfy a registration requirement preventing insiders and their affiliates from holding more of 75% of the free float. The same fictitious entities engage in stock manipulation and money laundering, according to Hindenburg. The firm also questioned the competence and independence of the auditors certifying the financial results of Adani Enterprises and a sister company.

In the two days after Hindenburg’s posting, Adani Group responded with only two brief statements. The former dismissed the critical report as “a malicious combination of selective misinformation and outdated, baseless and discredited allegations that have been tested and dismissed by India’s highest courts”. The second called it “an intentional and reckless attempt by a foreign entity to mislead the investment community.”

On Sunday, Adani released a 413-page response that dismissed some of Hindenburg’s allegations as old news, refuted by official investigations or otherwise disclosed in public filings. Adani also said he discloses all related party transactions and conducts them independently. base.

“This is not just an unwarranted attack on any particular company, but a calculated attack on India, the independence, integrity and quality of Indian institutions, and the growth and development of India. India’s ambition,” the company said.

Gautam Adani, 60, is from Gujarat, also the home state of Indian Prime Minister Narendra Modi. The two have been close, with Adani rallying political support for Modi. In turn, his businesses, mainly focused on infrastructure and energy, have won major government contracts in pursuit of Modi’s economic development goals. Adani has been dubbed “Modi’s Rockefeller”.

After dropping out of college, Adani worked in the diamond trade in Mumbai, then in importing plastics before starting his business. He is the survivor of an alleged kidnapping for ransom in 1997 as well as the 2008 terrorist attack on the Taj hotel in Mumbai.

Hindenburg Research is led by Nathan Anderson, a 38-year-old analyst and short seller. Anderson is known for a report describing electric vehicle maker Nikola as “an ocean of lies.” Nikola founder Trevor Milton was later convicted of defrauding investors. Hindenburg, who says his name evokes the man-made disasters his forensic investigations seek to uncover, said Adnani’s response to his report “ignores all the key allegations we have raised” while appealing to nationalism.

Hindeberg acknowledged that concerns over the beneficial ownership of offshore funds investing in Adani companies had already been raised in 2021 by an opposition Indian lawmaker. Similarly, Hindenburg’s report cited criticisms of the leverage of Adani companies published last year by the independent research firm CreditSights, which is owned by Fitch Ratings. CreditSights released several reports last year calling Adani’s companies overleveraged.

The Adani Group said it was considering legal action, while Hindenburg said it would welcome a US lawsuit as it has a long list of documents it would request as part of a discovery process. . At the same time, Hindenburg was careful to note that his bet against Adani is through bonds traded in the United States and derivatives not traded in India, adding that his report “relates only to the valuation of securities traded outside from India”.

Barring a court showdown, Adani’s share offering set to close on Tuesday could serve as the market’s verdict on Hindenburg’s claims. The offer price range now exceeds Adani Enterprises’ share price amid investor concerns, while some dollar-denominated bonds issued by Adnani Companies are now trading below 70 cents on the dollar of face value. “How does such a large group explain that there is no analyst or mutual fund coverage?” an investment analyst told Bloomberg.

Four of the seven publicly traded Adani companies had more than doubled in value in the year before Hindenburg’s report, while Adani Enterprises was also sitting on a nearly 1,400% three-year gain, according to Hindenburg. who said the Adani Group “appears to be significantly overvalued” based on the company’s own accounting.

If Monday’s losses in Adani stock cost Gautam Adani the accolade of Asia’s richest human being, as they might, taking his place would be rival tycoon Mukesh Ambani, who trailed 92 fortunes, Adani’s $7 billion from $11.4 billion on Sunday, according to Bloomberg. Their respective conglomerates have recently extended their competition to branded staples, although Adani called Mukesh Ambani a “very good friend”.

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