What are Hindenburg Research’s main allegations against Gautam Adani?

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Allegations of stock manipulation and accounting fraud by New York-based investor Hindenburg Research against Adani Group are mounting pressure on the Indian conglomerate and its 60-year-old founder. Gautam Adani is one of Asia’s richest men and at one point last year was second in the world after Elon Musk. Unlike Musk, Adani is relatively unknown outside of his home country. Here is some information about him and what is going on.

1. Who is Gautam Adani? What is his net worth?

Adani was born into a small family of textile merchants in 1962 in the western industrial state of Gujarat. He dropped out of college and began his career sorting diamonds for a company in the financial hub of Mumbai. He then imported materials used in manufactured goods, and by the mid-1990s he was managing the Port of Mundra, which he now owns. While his net worth took a hit in the days after the Hindenburgs report was released on January 24, he was still one of the richest men in the world according to the Bloomberg Billionaires Index.

2. How does Adani make money?

Adani Group today comprises half a dozen major companies whose interests range from energy to transportation and infrastructure development. It is India’s largest port operator and manages some of the largest airports in the country. Adani Enterprises, the group’s publicly traded trading house, had revenue of $9.3 billion in the year to March 31, 2022.

3. What are Adanis companies?

In addition to Adani Enterprises, which is also into coal mining, there are:

Adani Green Energy Ltd. (renewable energy production)

Adani Transmission Ltd. (power transmission)

Adani Total Gas Ltd. (gas distribution)

Adani Power Ltd. (coal-fired power generation)

The Adani Group also runs a real estate business, a shadow banking company named Adani Capital, and an edible oil and foodstuffs business through a venture with Singapore-based Wilmar International Ltd.

4. What are Adani’s political connections?

The tycoon is seen as closer to Prime Minister Narendra Modi, also from the state of Gujarat, than any other Indian billionaire. Adanis’ corporate strategy ran alongside Modis’ efforts to grow India’s $3.2 trillion economy. When Modi promised to bring reliable electricity to more Indians, Adani doubled its coal-fired power generation. The alignment extends to foreign affairs. In 2021, Adani began construction of a major port facility in Sri Lanka. Officials from both countries said the plan was encouraged by the Modi government, which wants to curb Chinese influence in the island nation. Whether it’s building highways or upgrading data centers, Adani can be counted on to provide money, infrastructure or expertise, no matter the political priority.

5. What are Hindenburg’s main allegations?

Hindenburg, founded by short seller Nathan Anderson, released a 100-page report accusing the Indian conglomerate of using a network of companies in tax havens to inflate earnings and stock prices, even as debt s was accumulating. Among the allegations:

It identified 38 fictitious Mauritian entities controlled by Adanis’ brother, Vinod Adani, or his close associates, as well as entities controlled by him in other tax havens.

The offshore shell network appears to be used for profit manipulation.

Adani Group has already been the subject of four major government investigations into allegations of fraud.

Adani Enterprises and Adani Total Gas seem to be audited by a tiny firm, without a current website, with only four partners and 11 employees, and which audited only one other listed company.

The auditor hardly seems capable of complex audit work, he said, as Adani Enterprises alone has 156 subsidiaries and many other joint ventures.

Hindenburg also said he took a short position essentially a bet that the stock price would fall in the Adanis companies through bonds traded in the United States and derivatives not traded in India. Shares actually fell, wiping out tens of billions of dollars of market value from Adanis’ flagship product. A record $2.4 billion follow-up share sale was canceled after it was fully subscribed on the last day, with the company’s board saying continuing would not be morally correct.

6. How did Adani respond?

In a rebuttal published Jan. 29, Adani said he answered some 65 of the 88 questions Hindenburg raised in the public disclosures. He described the short sellers’ conduct as nothing less than calculated securities fraud under applicable law. The group has stated that it will exercise our recourse rights to protect our stakeholders before all competent authorities. Hindenburg then said that Adanis’ response ignored all of his key allegations and was clouded by nationalism.

7. What is Hindenburg Search?

Anderson’s firm is technically a research and trading firm, not a hedge fund with outside investors, is less than five years old and bets its own money in the markets. Even in Manhattan financial circles, Anderson is hardly a big name. The closed firm specializes in forensic financial research, according to its website. He first came to Wall Street’s attention in 2020 for raising serious questions about electric vehicle makers Nikola Corp. and Lordstown Motors Corp.

–With assistance from Shikhar Balwani and PR Sanjai.

(Updates with end of stock offering. Earlier version corrected spelling of Shuli Ren in Reference Shelf)

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