In recent news, New York-based investor research firm Hindenburg Research has accused Indian industrialist Gautam Adani and his conglomerate of engaging in a “brazen stock manipulation and accounting fraud scheme over the course of decades”.
Since the release of the report, shares in Adani Group companies have taken a significant hit, causing the former richest Indian in the world to slip down to 22nd place on the Forbes Real-time billionaire list for 2023.
Allegations of Hindenburg Research on Adani Enterprises
Hindenburg Research released a report claiming that the Adani companies are vastly overvalued and accusing them of using shell companies for round-tripping, a method of circular trading that creates the illusion of economic growth and prosperity. This can artificially inflate the market value of companies and increase the net worth of the promoters.
A shell company is a type of business structure that often lacks an offline or online presence and operates from the same registered addresses. The report by Hindenburg Research has accused Gautam Adani’s elder brother of managing 38 such shell companies based in various countries, including Mauritius, Singapore, the Caribbean, and the Cayman Islands.
Hindenburg Research’s report also raises corporate governance concerns, including the frequent change of the group’s Chief Financial Officer (CFO) five times in eight years and the role of a small auditing firm in Ahmedabad in auditing Adani Enterprises and Adani Total Gas.
While the report by Hindenburg Research is not the first to level allegations against the Adani group, it has received attention from international media and is being taken seriously. Lok Sabha MP Mahua Moitra has also written to the Indian government and stock market regulator Sebi calling for inquiries into the matter.
The listed Adani companies have lost over half of their market value, with a combined worth of USD 108 billion compared to USD 218 billion prior to the report by Hindenburg Research. The research firm, which holds short positions in Adani companies, claimed that key companies within the group have substantial debt, putting the entire conglomerate in a financially precarious position.
Response of Adani Group on the allegations
Adani Group has firmly rejected the criticism and denies any wrongdoing. In a 413-page response, the group stated that the accusations are not just an attack on a specific company, but an attack on India and its institutions, growth, and ambition. However, Hindenburg Research countered that the response from Adani did not address any of the substantive points raised in the report and instead, Adani attempted to conflate the wealth of its chairman with the success of India itself.
The report has resulted in significant market losses for Adani, totaling over USD 100 billion. The Adani Group has decided to cancel a planned Rs 20,000 crore follow-on public offer by Adani Enterprises and will instead be refunding money to investors. S&P Dow Jones Indices has also announced that Adani Enterprises will be removed from widely used sustainability indices on February 7th.
Indian government’s stand on recent Adani issue
As a result of the report, the Reserve Bank of India has sought details from banks regarding their exposure to the Adani Group, while the market regulator SEBI has not announced any probe into the crash in Adani shares and the cancelled follow-on public offer.
Banks such as State Bank of India, Punjab National Bank, and Bank of Baroda have disclosed their exposure to the Adani Group, with opposition members calling for a Joint Parliamentary Committee probe into the allegations of fraud and stock manipulation.
Union Finance Minister Nirmala Sitharaman has stated that both LIC and SBI are not “over-exposed” to Adani Group shares and that investors’ confidence will endure in the market. Meanwhile, Parliamentary Affairs Minister Pralhad Joshi criticized the opposition for disrupting Parliament proceedings over the Hindenburg report and emphasized that the government has no connection to the issue.
The Adani storm has reached Parliament, with the opposition demanding a probe into the allegations of fraud and stock manipulation, either by a Joint Parliamentary Committee or monitored by the Supreme Court or the Chief Justice of India.
Who is Gautam adnai and Adani Group?
The Adani Group, an Indian conglomerate with 7 publicly listed companies and 578 subsidiaries, is currently valued at $200 billion and is allegedly controlled by the Adani family. The group has established an impressive 270 companies since 2014, with as many as 125 of them reportedly located in London. The net worth of the group’s founder, Gautam Adani, has seen a dramatic increase from $20 billion in 2018 to $120 billion in 2022, making him the third wealthiest person in the world.
Gautam Adani is a prominent Indian industrialist who serves as the Chairman of the Adani Group, a conglomerate of companies with interests in ports, logistics, agribusiness, energy, and real estate, among others. Adani is widely regarded as one of India’s most influential business leaders and has been instrumental in shaping the country’s economy and infrastructure.
Adani was born in the Indian state of Gujarat in 1962 and started his entrepreneurial journey at a young age. He initially set up a small trading business, and over the years, he built the Adani Group into one of India’s largest conglomerates. Adani’s journey to success has been characterized by his ability to identify opportunities and his relentless pursuit of growth. He has been praised for his leadership skills and his commitment to building a better India.
Adani has made a significant impact on India’s infrastructure and transportation sector, especially with the development of the country’s largest private port at Mundra in the state of Gujarat. He has also made investments in renewable energy, setting up India’s largest solar power project, and has been working to create a pan-India gas distribution network.
What is the history of Hindenburg Research?
Hindenburg Research is an investment research firm based in New York City that was established in 2017 by Nathan Anderson. The company is focused on activist short-selling and is named after the 1937 Hindenburg disaster, which they view as a preventable tragedy caused by human error.
The firm produces public reports on their website that accuse companies of corporate fraud and unethical behavior. Some of the firms they have targeted in the past include Adani Group, Nikola, Clover Health, Kandi, and Lordstown Motors.
The reports also defend the practice of short-selling, claiming that it helps to uncover fraud and protect investors. The firm holds short positions in the companies they investigate before publishing their reports.
In conclusion, the recent report by Hindenburg Research has sparked controversy and caused significant losses for Adani Group and its listed companies. The group has denied any wrongdoing and the government has stated that there is no connection to the issue. Nevertheless, the impact of the report and its accusations will continue to be closely monitored in the coming days and weeks.