Adani vs Hindenburg: India’s top businessman faces biggest test yet

New Delhi

The richest man in India Gautam Adani ended his trip to Davos earlier this month on an upbeat note. The infrastructure billionaire expressed confidence in India’s growth and ambition. He even talks about his mild addiction to ChatGPT.

At home, his huge logistics and energy conglomerate has announced plans to float more businesses on the stock market and issue new shares to raise billions to pay down debt. Less than a week later, everything changed.

Hindenburg Research, a small American firm, published a scathing report last Tuesday on the Adani Group, which currently has a market value of more than $200 billion. In his investigation, Hindenburg accused the group of “brazen stock manipulation and an accounting fraud scheme spanning decades.”

Adani immediately denounced the report as “baseless” and “malicious”, but the market reaction was swift and brutal. By Monday, his business empire had lost $70 billion in stock market value. The debacle was a creaking U-turn for Adani – share prices of some of its companies had jumped more than 1,000% on The Indian stock market over the past few years.

“In the short term, markets are driven by sentiment and the release of this report, sentiment is playing against the Adani group,” said Swapnil Shah, director of research at brokerage Stoxbox.

So how did a relatively young and small financial research firm in New York manage to stop Adani’s headaches? What happens next in this David vs. Goliath battle?

Adani, a 60-year-old college dropout, has been compared to business tycoons like John D. Rockefeller and Cornelius Vanderbilt, who built huge monopoly enterprises in the 1800s.

Much of his fortune is tied to the growing Adani Group, which he founded more than 30 years ago. Although nearly $40 billion was wiped off his personal net worth last week, he remains Asia’s richest man with $82 billion — $2 billion more than fellow Indian entrepreneur Mukesh Ambani, according to the Bloomberg Billionaires Index .

At his peak last year, he had displaced Jeff Bezos as the world’s second-richest person, making it the first time an Asian had ranked so high on Bloomberg’s list, long dominated by white tech entrepreneurs. But in the last week, Adani fell from fourth place to 11th.

Experts say the speed with which he has amassed wealth is both extraordinary and unusual, even in India, where the number of ultra-rich is growing explosively.

A first-generation entrepreneur, Adani began his career in diamond trading before setting up a commodity trading business in 1988, which later evolved into Adani Enterprises Limited (AEL).

Soon after, India launched groundbreaking reforms that spurred its economic growth. Adani grew its wealth along with it. In 1994, AEL became the first of his companies to be listed on the Mumbai Stock Exchange.

A year later, Adani began operating Mundra Port in Gujarat, a western state that is home to both the businessman and Narendra Modi, India’s prime minister. Often referred to as the ‘jewel in the group’s crown’, Mundra Port is the country’s largest commercial port by volume.

A general view of a container terminal is seen at Mundra port in Gujarat, April 1, 2014.

AEL functions as an incubator for Adani’s business. Once matured, they are spun off, often through stock market listings. Many of Adani’s companies have become leading players in their respective sectors.

It is one of India’s largest coal producers and also operates the controversial Carmichael coal mine in Australia, which has faced fierce opposition from climate change campaigners.

While Adani’s empire is built on fossil fuels, the businessman is investing billions of dollars in clean energy, an ambition that aligns with India’s long-term climate goals.

In recent years, it has also expanded into sectors ranging from media and data centers to cement and airports.

Adani is seen as a close ally of Modi and investors are betting on its ability to grow its business in sectors the prime minister has priority for development.

Narendra Modi and Gautam Adani.

But critics say its rise has stalled heavily on crony capitalism. They doubt whether his empire can survive unscathed if there is a change of government.

Adani Group — employing over 23,000 people — now struggling with its worst crisis in recent times over the Hindenburg Report.

Named after the 1937 airship disaster, the firm makes bold bets against high-profile corporations it believes are overvalued, fraudulent, or both.

It was founded in 2017 by Nathan Anderson and earned its reputation as a financial abuse hunter in 2020 when it accused electric vehicle maker Nikola of lying to investors about its truck’s capabilities. Nicola’s founder was eventually convicted of fraud.

In its probe into Adani, Hindenburg said it took short positions in the group’s firms “through US-traded bonds and non-Indian-traded derivatives”. Short sellers aim to make money by betting that the stock price of the companies they target will fall.

The research firm questioned the “sky-high valuations” of Adani’s firms and said their “significant debt” put the entire group “on a shaky financial footing”. The report ended with 88 questions. They range from asking for details of Adani’s offshore entities to why it has “such a complex, interconnected corporate structure”.

Nate Anderson on January 6, 2023 in New York, New York.

There has been furor between the Adani Group and Hindenburg since the report was published, with the Indian conglomerate on Thursday saying it was considering legal action. He followed that up on Sunday with a long and angry rebuttal spanning more than 400 pages, calling Hindenburg’s claims “baseless and discredited” and saying the research firm had an “ulterior motive.”

He also presented the US short-sellers’ report as an “attack” on India, its economy and investors.

Hindenburg responded to Adani’s rebuttal by saying that “deception cannot be obscured by nationalism.”

“Adani Group has sought to link its meteoric rise and the fortunes of its chairman Gautam Adani to the success of India itself,” it said in a Twitter post on Sunday.

India’s stock market regulator has yet to comment on the allegations, but Life Insurance Corporation (LIC), the country’s largest insurer with more than $4 billion invested in the Adani Group, told Reuters it would hold talks with the group

“A situation is arising now and we are not sure what the factual position is… Being a large investor, we have the right to ask appropriate questions and we will definitely engage with them,” Raj Kumar, Managing Director, LIC he was quoted as saying.

Hindenburg’s claims came at a sensitive time for Adani as it sought to raise 200 billion rupees ($2.5 billion) by issuing new shares in Adani Enterprises. The offer was touted as India’s largest ever public offering of shares by a listed company.

After a tepid start, the offer was fully subscribed shortly before the deadline set for the close of trading in Mumbai on Tuesday. Its success offers Adani some respite after the relentless stock market turmoil of recent days.

This is not the first time analysts have raised concerns that the rapid growth of Adani’s business comes with huge risk. Adani’s empire is fueled by a $30 billion loan binge, making his business one of the most indebted in the country.

CreditSights, a research firm owned by Fitch Group, published a report last year for Adani Group, titled ‘Deeply Overleveraged’, in which it expressed strong concerns about its debt-financed growth plans.

In its response, Adani Group said the “leverage ratios” of its companies “continue to be healthy and in line with industry benchmarks in the respective sectors. ”

In the long run, however, analysts believe that as long as Adani’s shares get a much-needed correction in value, the group will survive this crisis.

Adani Group “is not going anywhere,” said Rajat Sharma, founder of financial advisory firm Sana Securities. “They are a well-established group in systemically important businesses.”

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