A New York-based Hindenburg Research report has come out with a series of charges on Adani Group and its founder Gautam Adani, while accusing the richest Asian business magnet of stock manipulation and accounting fraud.
The report also stated that Adani family allegedly ran offshore shell companies in tax havens such as Mauritius, the United Arab Emirates, and the Caribbean Islands, apart from allegedly creating false import and export documentation to produce fictitious, fraudulent sales and steal money from publicly listed companies.
Ever since the report came out on January 24, the day on which Adani Enterprises’ Rs 20,000-crore follow-on share sale opened for investors, the group’s stocks have taken a beating on the bourses.
What are the allegations?
The Hindenburg report claimed that Gautam Adani’s younger brother Rajesh Adani and brother-in-law Samir Vora played significant roles in the diamond trading import and export scheme in 2004–2005 that involved the use of offshore entities to generate fictitious turnover.
However, the more serious accusations were against Vinod Adani, the elder brother of Gautam Adani. As per the report, Vinod Adani played an important role in managing a network of offshore firms to facilitate fraud. Hindenburg said, “Vinod Adani manages a large labyrinth of offshore shell entities through his close friends.”
Vinod Adani and his close allies are allegedly in control of 38 shell firms situated in Mauritius, and he is also “secretly controlling” additional businesses in Cyprus, the United Arab Emirates, Singapore, and several Caribbean Islands.
According to Hindenburg, many of these businesses have no ‘obvious’ indications that they are in operation, with no reported employees, addresses, phone numbers, or an online presence. Despite this, they had transferred billions of dollars into both publicly and privately listed Adani companies.
Vinod Adani has been accused in the report of stock parking, stock manipulation, and money laundering. This was done through Adani’s private companies onto the listed companies’ balance sheets in order to maintain the appearance of financial health and solvency.
Vinod Adani “manages a vast labyrinth of offshore shell entities that move billions into group companies without required disclosure, and its auditor “hardly seems capable of complex audit work”, the report remarked further.
What About Companies Having Business Exposure To Adani Group?
India-based Life Insurance Corporation (LIC), which has investments in the Adani Group, has issued a statement saying its investments in the group are safe.
“Our total holding in the Adani Group companies under equity and debt on date is Rs 36,474.78 crore. This was Rs 35,917.31 crore as of December 31, 2022. Total purchase value of these equities of the group companies, bought over the past many years, is Rs 30,127 crore and the market value for the same at close of market hours on January 27, 2023 was Rs 56,142 crore,” LIC said.
“The total purchase value of equity, purchased over the last many years, under all the Adani group companies is Rs 30,127 crore and the market value for the same as at close of market hours on January 27, 2023, was Rs 56,142 crore,” the insurance body remarked further.
“The total Assets Under Management by LIC are over Rs 41.66 lakh crore as of September 30, 2022. Therefore, LIC’s exposure in the Adani group, as of date, is 0.975 per cent of LIC’s Total AUM at book value,” it added.
LIC’s total holding under equity and debt is Rs 35,917.31 crore as of December 31, 2022, under the Adani Group. The total amount invested under Adani Group amounts to Rs 36,474.78 crore as of date.
“These investments have however been made over a period. Further, it may be appreciated that the credit rating of all of the Adani debt securities held by LIC are AA and above which is in compliance with the IRDAI investment regulations as applicable to all the Life Insurance companies,” said the insurer.
LIC owned a 4.23% stake in the flagship Adani Enterprises as of end-December, over 9% in Adani Ports and Special Economic Zone, nearly 6% in Adani Total Gas and 3.65% in Adani Transmission, according to data from the Bombay Stock Exchange.
LIC, the 66-year-old institution of repute and standing, follows a strict investment framework compliant with applicable guidelines and regulations.
“While the market value of assets can change in either direction, LIC invests from a long-term perspective and based on detailed due diligence. LIC follows a robust procedure for valuation of its liabilities and determination of solvency margin in order to ensure its financial soundness on a continued basis,” the company said in its statement.
Another India-based financial institution named Punjab National Bank (PNB), which has about Rs 7,000 crore exposure in Adani Group entities, said that it was keeping a close watch on the developing situation.
Meanwhile, Adani Group also bagged a USD 400 million investment by Abu Dhabi’s International Holding Company (IHC) in its flagship firm’s share sale.
International Holding Company said it will invest about USD 400 million in Adani Enterprises’ follow-on share sale, saying it was confident in the fundamentals of the conglomerate even after the route in share value.
“We see a strong potential for growth from a long-term perspective and added value to our shareholders,” its CEO Syed Basar Shueb said in a statement.
IHC is led by Sheikh Tahnoon Bin Zayed Al Nahyan, the UAE’s national security adviser and brother to President Mohammed bin Zayed Al Nahyan.
Not Everything Is Fine
Adani was the world’s third richest man till a day before the publication of the Hindenburg Research report on his group’s debt levels and alleged practices like stock manipulation, accounting fraud and the use of tax havens. The stock market bloodbath after January 24 has resulted in the business tycoon slipping to the 8th position, narrowing the gap with rival Mukesh Ambani, head of Reliance Industries, whom he overtook in 2022 April, to just USD 4 billion.
While anchor investors have poured in almost Rs 6,000 crore in the Adani FPO, the public subscription remained at just a meagre 3% of the shares on offer being subscribed till the evening of January 30, according to the BSE information.
The offer closes on January 31 and the retail investor portion, which is the biggest chunk of the FPO, has got only a 4% subscription. However, things may change for the troubled FPO by January 31, as it is expecting to get investments worth about 9,000 crores expected from family offices (entities created by high net-worth individuals to manage their money-related matters) in Dubai and India.
As per ‘The Hindu Businessline’, the Adani Group has received interest from several family offices and a formal announcement is expected shortly. This will be in addition to the 6,000 crores from anchor investors and another 3,200 crores from IHC. The fresh investments will take Adani Enterprise closer to its target of 20,000 crores from the FPO. However, the public subscription remained muted with just 3% of the shares on offer being subscribed till January 30, according to the BSE information.
The offer closes on January 31 and the retail investor portion, which is the biggest chunk of the FPO, has only got a 4% subscription.
What Is Hindenburg?
Hindenburg Research LLC is an investment research firm founded by New York-based Nathan Anderson. It focuses mostly on activist short-selling (a process of buying back securities at a lower price in the future, once the stock price has dropped. The securities are then returned to the lender and the short-seller pockets the price difference between the purchase price and the selling price as a profit). The firm has exposed business malpractices of electric truck maker Nikola Corporation and Elon Musk-headed Twitter before.
War Of Words Ensue
The Adani Group responded to the Hindenburg in a 413-page document and claimed that the report had made false claims and statements about offshore entities without having any knowledge of Indian laws around related parties and related party transactions.
Adani Group had called Hindenburg “Madoffs of Manhattan” and that its report was “not merely an unwarranted attack on any specific company but a calculated attack on India, the independence, integrity and quality of Indian institutions, and the growth story and ambition of India”.
“All transactions entered into by us with entities who qualify as ‘related parties’ under Indian laws and accounting standards have been duly disclosed by us,” remarked Adani Group in its rebuttal.
“This is rife with conflict of interest and intended only to create a false market in securities to enable Hindenburg, an admitted short seller, to book massive financial gain through wrongful means at the cost of countless investors,” the company commented further.
However, the US-based activist firm has dismissed Adani’s charges and said a “fraud” cannot be obfuscated by nationalism or a bloated response that ignored key allegations.
“To be clear, we believe India is a vibrant democracy and an emerging superpower with an exciting future,” it said.
“We also believe India’s future is being held back by the Adani Group, which has draped itself in the Indian flag while systematically looting the nation,” Hindenburg commented further.
“A fraud is fraud, even when it’s perpetrated by one of the wealthiest individuals in the world. Adani also claimed we have committed a ‘flagrant breach of applicable securities and foreign exchange laws’. Despite Adani’s failure to identify any such laws, this is another serious accusation that we categorically deny,” it said.
Adani’s 413-page response only included about 30 pages focused on issues related to the report and the remainder consisted of 330 pages of the business group’s legal records, along with 53 pages of high-level financials, general information, and details on “irrelevant” corporate initiatives, as per the US-based firm.