Nothing lasts forever, neither wealth nor time. The same holds in the case of the ‘once the third richest man on the Earth’ – Gautam Adani. A report by New York-based investment research firm- Hindenburg Research came in like a storm for Adani and its empire. In the last few days, Gautam Adani faced a double whammy of erosion of his wealth and losing credibility in the business market.
The explosive report by Hindenburg sent shockwaves across the Indian financial market, leaving a deep cut in the shares of Adani Group. The ‘Turning Red’ event of Adani Group’s stocks has a story to tell.
The dramatic downturn began with a Hindenburg report alleging fraud using tax havens and expanding from ports to power on debts. It further alleges the group of stock manipulation for years. Two days before the launch of Adani’s FPO, which was later canceled, Hindenburg dropped the bomb.
Let us take a quick walk through the events leading to a dip in Gautam Adani’s ranking among the top affluent people on the planet.
January 24: Hindenburg Research Tweeted: “The Largest Corporate Fraud In History”
The 2017-born US short-seller firm claimed their investigation into Adani Group could bare the largest corporate fraud in history.
Soon we will release a report on what we strongly suspect to be the largest corporate fraud in history.
— Hindenburg Research (@HindenburgRes) January 24, 2023
January 25: Report Writes Down An Array Of Allegations
In its extensive research report published by Hindenburg Research, dated Jan 24, 2023, Adani Group was asked 88 questions in the concluding part with the hope of receiving a response.
In the 2-year investigation report, Hindenburg Research presented a stack of findings, some of which are as follows:
The investment research firm collected data primarily by contacting former senior executives of Adani Group, reviewing thousands of documents, and conducting diligence site visits in almost half a dozen countries.
- The investment research firm noted that the Indian conglomerate- Adani Group- has been observed to be engaged in stock manipulation and accounting irregularities.
- Recent Jump In Net Worth: In the last three years, notably, when the entire country was grappling with the coronavirus pandemic and economic activities came to a standstill, Adani Gautam added over $100 billion to his roughly estimated net worth of $120 billion.
- The jump in the net worth largely came through stock price appreciation in the seven key listed companies of Adani Group. These companies saw a spike in their shares on an average of 819% in that period.
- Debts Against Pledging Shares of Inflated Stocks: Key listed Adani companies took substantial loans by pledging against their shares of their inflated stock, putting the financials in jeopardy. 5 of 7 key listed companies have current ratios below 1, a forewarning of near-term liquidity pressure.
- Adani Group – A Family business: According to the research, the decision-making and power-holding positions are in the hands of a few in the group. The top-level ranks and 8 of 22 key leaders are strikingly from the Gautam Adani family.
- Fraud Cases: The Adani Group has previously been the epicenter of 4 government fraud investigations related to money laundering, theft of taxpayer funds, and corruption. Family members of the billionaire business tycoon allegedly set up offshore shell entities in tax-haven countries like Mauritius, the UAE, and Caribbean Islands in pursuit of generating forged import/export documentation, faking turnover, and siphoning money from the listed companies.
- Case #1: Period Under Investigation: 2004-2006 — Circular Trading In Diamonds
Directorate of Revenue Intelligence (DRI) alleged that publicly listed erstwhile Adani Exports (now Adani Enterprises) and other Adani-controlled companies are engaged in circular trading in cut and polished diamonds (CPD), over-inflating the value of goods and pumping export turnover. - Case #2: Period Under Investigation: 2006-2010 — Iron Ore Scandal
Adani Enterprises led exporting of undeclared volumes of often illegally mined iron ore, estimated INR 600 billion (U.S. $12 billion at the time), through the port it leased at Belekeri. - Case #3: Period of Investigation: 2009-2014 — Siphoning off Cash & Money Laundering
In 2014, the DRI alleged Adani Group of over-invoicing power plant equipment by INR 39.74 Billion (~U.S. $800 mn at the time), It alleged power companies –APML and APRL, related entities, and Vinod Adani of drawing off cash abroad and indulging in trade-based money laundering. - Case #4: Period under Investigation: 2011 to 2016 — Over-invoice Indonesian Coal Imports
In another investigation by the DRI, Adani Group was said to be involved in INR 290 Billion (U.S. ~$4.4 Bn) scam to over-invoice Indonesian Coal Imports, transferring costs to taxpayers.
NEW FROM US:
Adani Group – How The World’s 3rd Richest Man Is Pulling The Largest Con In Corporate Historyhttps://t.co/JkZFt60V7f
(1/x)
— Hindenburg Research (@HindenburgRes) January 25, 2023
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Allegations On the Role of Adani’s Brothers & Brother-In-Law In Pulling The Scam:
1) Younger Brother — Rajesh Adani– Directorate of Revenue Intelligence (DRI) alleged him for being the central figure in the diamond trading import/export scheme around 2004-2005. They schemed to use offshore shell entities to generate artificial or fake revenue.
He has been arrested at least two times over separate allegations of forgery and tax fraud. He later became Managing Director of Adani Group.
2) Elder Brother — Vinod Adani– is often defined as an elusive figure by the media. He was as often as not embroiled in the government investigations into Adani for his alleged role in managing a network of offshore entities to facilitate fraud.
The research mentions that tracing the relevant information to many of the Vinod Adani-associated entities is difficult. There are neither online records of headcount, independent addresses, or phone numbers nor meaningful online presence.
Despite this, they managed to transfer billions of dollars into Indian Adani publicly listed and private entities, often without required disclosure of the related party nature of the deals.
Also, the report talks about the rudimentary efforts by the group to conceal facts. It says they created 13 websites for Vinod Adani-associated entities, many of which were suspiciously formed on the same days, featuring only stock photos, naming no actual employees, and listing the same set of nonsensical services, such as ‘consumption abroad’ and ‘commercial presence’.
Per the report, Vinod-Adani shell companies actively participated in stock parking/stock manipulation and money laundering through Adani’s private companies on the balance sheet of listed companies to give a healthy look to the financial health and solvency.
What is stock parking?
Investopedia defines it as an illegal practice of offloading shares to another party believing that the original owner will buy back after a short time.
3) Brother-in-law — Samir Vora– DRI accused him of being a mastermind in the same diamond trading scam in which Rajesh Adani is involved. Additionally, he came to the notice of regulators for repeatedly making false statements. He was also later promoted to Executive Director of the critical Adani Australia division.
January 29: Adani Group Hits Back, Calls Allegations Baseless & A Calculated Attack On India
Adani Group called the New-York based research boutique the “ “Madoffs of Manhattan” in a note to its stakeholders.
- The 413-page response remarks that the “admitted short-seller” is driven by an “ulterior motive”.
With the help of a selective approach and half-cooked information, the research outfit intends to create a false market image so that they can gain financially at the price of countless investors.
“The document is a malicious combination of selective misinformation and concealed facts relating to baseless and discredited allegations to drive an ulterior motive. 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. ”
Adani Group’s detailed response to Hindenburg’s Unsubstantiated Accusationshttps://t.co/byWV8z9q6O
— Adani Group (@AdaniOnline) January 29, 2023
- Adani Group calls the release of the report a calculated attack on India.
“This is 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.”
- Without further ado, Adani struck back at the research outfit and questioned its viable existence instead.
It said, “Despite all its talks of “transparency”, Hindenburg has actively concealed the details of its short positions, the source of its own funding, who is behind them, the illegality underlying the synthetic structures by which they hold such positions, or the profit it has made by holding such positions in our securities.”
January 29: Hindenburg Research Evens The Score, Replies: Fraud Cannot Be Obfuscated By Nationalism
In the war of words between the two, the research outfit blamed the group for conflating Adani’s success with that of India. It vehemently opposed setting the ‘nationalism narrative’ to divert from the issues raised.
It retorted, “Fraud cannot be obfuscated by nationalism or a bloated response that ignores every key allegation we raised.”
“It (Adani Group Response) also predictably tried to lead the focus away from substantive issues and instead stoked a nationalist narrative, claiming our ( Hindenburg Research) report amounted to a “calculated attack on India.” In short, the Adani Group has attempted to conflate its meteoric rise and the wealth of its Chairman, Gautam Adani, with the success of India itself.”
It added, “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.”
The Hindenburg rebutted Adani group failed to answer 62 of 88 questions asked. In a lengthy ‘413 page’ response, only 30 pages focused on issues raised in the Hindenburg report.
“The remainder of the response consisted of 330 pages of court records, along with 53 pages of high-level financials, general information, and details on irrelevant corporate initiatives, such as how it encourages female entrepreneurship and the production of safe vegetables.”
Our Reply To Adani:
Fraud Cannot Be Obfuscated By Nationalism Or A Bloated Response That Ignores Every Key Allegation We Raisedhttps://t.co/ohNAX90BDf
— Hindenburg Research (@HindenburgRes) January 30, 2023
February 1:
Adani Enterprises rescinded the Rs 20,000 crore follow-on public offer (FPO). The company will return the proceeds received from FPO, mainly bailed out by corporates and foreign investors in the face of market volatility.
Gautam Adani, in a statement, especially emphasized Cash Flows and the ability to pay off debts. He said, “Our balance sheet is very healthy with strong cash flows and secure assets, and we have an impeccable track record of servicing our debt.”
Despite the plunging stock price of AEL, quoting lower than the issue price, the FPO was subscribed 1.12 times on the closing day of FPO following deep interest shown by qualified institutional buyers (QIBs), including foreign institutional investors (FIIs) and non-institutional investors (NIIs).
- The QIB quota received 1.26 times subscription and NIIs 3.32 times.
- Corporates subscribed for 1.66 crore shares worth Rs 5,438 crore.
- FIIs bid for 1.24 crore shares aggregating to Rs 4,127 crore.
- Retail investors’ quota remained undersubscribed.
- Investors bid 0.12 times or 27.45 lakh shares against 2.29 crore shares.
- The employee portion also received a muted response, with only 55 percent of the quota getting bids.
Adani Enterprises has decided not to go ahead with the fully subscribed FPO.
— Adani Group (@AdaniOnline) February 1, 2023
— On a separate note, the private banking arm of Credit Suisse AG announced it would stop accepting bonds of — Adani Ports & SEZ, Adani Green Energy, and Adani Electricity Mumbai – as collateral for margin loans. It has assigned a zero lending value for notes sold by these entities.
— Jo Johnson, younger brother of former UK prime minister Boris Johnson, resigned from the board of UK investment banking firm- Elara Capital, which reportedly was one of the book runners of Adani Enterprise FPO.
February 2:
— Gautam Adani, in a video statement, reasoned the protection of investor interest behind canceling the fully-subscribed follow-on public offer (FPO).
In a statement, he said it would “not be morally correct” to go ahead with the FPO in light of the market volatility.
Chairman @gautam_adani‘s address to investors after withdrawal of the fully subscribed AEL FPO#GrowthWithGoodness #NationBuilding #AdaniGroup pic.twitter.com/f9yaYrxCzx
— Adani Group (@AdaniOnline) February 2, 2023
— On the same day, Citigroup Inc.’s wealth unit also halted accepting– all Adani-issued securities with immediate effect– as collateral for margin loans.
February 3:
— S&P Global Ratings revised the rating outlook for two of the listed companies of the embattled Adani group– Adani Electricity and Adani Ports to ‘negative’ from ‘stable’.
— On the same day, S&P Dow Jones Indices announced stripping off beleaguered Adani Enterprises from its sustainability indices immediately from February 7.
“Adani Enterprises will be removed from the Dow Jones Sustainability Indices following a media and stakeholder analysis triggered by allegations of stock manipulation and accounting fraud,” said the announcement.
February 6:
British lender Standard Chartered also followed suit and announced the halting of accepting Adani Group bonds as collateral on margin loans.
February 8:
— The Financial Conduct Authority (FCA), the financial regulatory body of the UK, initiated monitoring potential links between Adani Group and the City firm Elara Capital.
— The Reserve Bank Of India said domestic banks’ exposure to the Adani Group is limited, and the system is solid and large enough not to be affected by such a single incident.
“Our domestic banks’ exposure is against the underlying assets, the operating cash flows, and the projects under implementation. And not based on the market capitalization,” RBI Deputy Governor M.K. Jain said while interacting with the press at the customary post-policy review conference.
“…the strength, the size, and the resilience of the Indian banking system now are much stronger and larger to be affected by an individual incident or a case like this,” he added.
— Punjab National Bank (PNB) has an exposure of ₹7,000 crores to the Adani Group.
— State Bank of India (SBI) has a total exposure of ₹27,000 crores to the group.
— Private sector bank– Axis Bank’s exposure is 0.94% of its net advances.
February 9 :
In June 2022, TotalEnergies entered into a pact with Adani Enterprises Limited (AEL) to acquire a 25 percent interest stake in Adani New Industries Limited (ANIL), a joint venture for the production and commercialization of green hydrogen in India. TotalEnergies, on February 9, cleared that, though they announced the deal with Adani Enterprises, no contract signing has been yet.
February 10:
The Supreme Court understood investors suffered losses in Gautam Adani’s group after the report released by the short-seller Hindenburg Research and observed that the time has come to safeguard investors.
The apex court heard the two public interest litigations (PILs) seeking a court-monitored probe. The Supreme Court bench chaired by CJI DY Chandrachud and Justices PS Narasimha and JB Pardiwala asked SEBI to suggest measures to protect Indian investors.
“One of the suggestions is to have some committee. We do not want to cast any doubt on Sebi or the regulatory agencies. But the suggestion is to have a broader thought process so that some inputs can be obtained. And then the government can take a call as to whether some modification is required of the statute, or whether a modification for the regulatory framework is required. Beyond a certain stage, we won’t enter into the policy domain, but there should be a mechanism that such a thing doesn’t happen in the future. This is the call that the government has to take.”
February 11:
Downward revision: Moody’s Investor Services revised the outlook for four Adani Group companies from ‘stable’ to ‘negative’.
These firms include Adani Green Energy Ltd, Adani Green Energy Restricted Group, Adani Transmission Step-One Ltd, and Adani Electricity Mumbai Ltd.
Forbes Real Time Billionaires: Gautam Adani Falls Out Of Top 20 Richest People List
The Hindenburg Effect caused Gautam Adani to slip out of the top 20 Richest persons on the planet. Per the Bloomberg Billionaires Index, Adani Enterprises’ founder had a net worth of USD 138 billion on December 11, 2022, which now stands at USD 55.8 billion as of February 12, 2023.
A loss of $ 82.2 billion dragged the ranking of Gautam Adani to the 21st place. A total of $63.2 billion has been swept away from his net worth since the release of the Hindenburg report.
Due to the continuous bloodbath in the Adani Group stocks, the widening gap between the net worths of Gautam Adani and Reliance Industries Limited (RIL) chairman Mukesh Ambani has narrowed.
Mukesh Ambani has reclaimed the title of the Richest Indian as of February 12, 2023. He is at present one rank short of entering the top 10 list of Richest people on Earth, with a net worth of $80.3 billion.
Three consecutive years – CY20, CY21, and CY22 – have seen the Adani family earn at the fastest rate among billionaires.
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