Prominent US activist investor Hindenburg Research has alleged that Adani Group was “engaged in blatant stock manipulation and accounting fraud”, an allegation the conglomerate described as malicious, unfounded, one-sided and made with the malicious intent of ruining its stake-sale.
Hindenburg, a US-based investment research firm that specializes in activist short selling, said its two-year investigation revealed that “India’s 17.8 trillion rupee ($218 billion) conglomerate Adani Group engaged in brazen stock manipulation and accounting fraud scheme spanning decades.” The report comes ahead of a subsequent 20,000-crore stake sale of flagship Adani Enterprises to the Adani Group. Group officials said a statement in response would be issued later.
The follow-on public offer (FPO) is scheduled to begin on January 27 and end on January 31. Adani Group said it was shocked to see the report that came out without any attempt to contact it to get the factual matrix.
“The report is a malicious combination of selective misinformation and outdated, baseless and discredited claims that have been tested and rejected by the highest courts of India,” the port-to-energy conglomerate said in a statement.
He went on to question the timing of the report, saying its release before the FPO “clearly betrays a brazen, malicious intent to undermine the Adani Group’s reputation with the primary objective of damaging” the issue.
Adani Group shares fell after the report but recovered some of the losses. Adani Enterprises fell 2.5 percent but trimmed some losses after the statement to trade 1.5 percent lower at 1350 hrs. Adani Ports & SEZ Ltd, which was down 6.23 percent at midday, also recovered some positions and was down 5.1% at 1350 hours.
“Gautam Adani, founder and chairman of the Adani Group, has amassed a net worth of approximately US$120 billion, adding over US$100 billion over the past 3 years mainly through appreciation of shares in the group’s seven key listed companies, which have jumped an average of 819 percent during this period,” the American researcher’s report said.
The Hindenburg Report detailed a network of Adani family-controlled offshore shell companies in tax havens spanning the Caribbean and Mauritius to the United Arab Emirates, which were allegedly used to facilitate corruption, money laundering and taxpayer theft, such as at the same time, money was drained from the group of registered companies.
“Our research involved speaking to dozens of individuals, including former senior Adani Group executives, reviewing thousands of documents and conducting on-site inspections in almost half a dozen countries,” it said.
Hindenburg claimed to have discovered “rudimentary efforts apparently designed to disguise the nature of some of the shells.”
“Even if you ignore the findings of our investigation and take Adani Group’s financials at face value, its 7 key listed companies are down 85 percent on a fundamental basis alone due to extremely high valuations,” the report said, adding key listed Adani companies also have taken on significant debt, including pledging portions of their bloated stock against loans, putting the entire group on shaky financial footing.
Adani Group has repeatedly dismissed debt concerns. Its Chief Financial Officer Jugeshinder Singh on January 21 during a media call stated that, “No one has expressed any debt concerns to us. Not a single investor has.”
“The investor community has always trusted Adani Group based on detailed analysis and reports prepared by financial experts and leading national and international credit rating agencies,” the group said on Wednesday.
“Our informed and knowledgeable investors are not swayed by biased, motivated and unsubstantiated self-interested reports.”
The statement said the group is a diverse portfolio of market-leading businesses managed by executives of the highest professional caliber and overseen by experts in various fields over several decades.
“The group has always complied with all laws regardless of jurisdiction and maintains the highest standards of corporate governance,” it added.
Credit Sights, part of Fitch Group, last September described the group as “overleveraged”.
Credit Sights later corrected some calculation errors but maintained it had “concerns” about its debt.
Adani Group responded to Credit Sights’ initial report by saying its companies’ debt ratios “continue to be healthy and in line with industry benchmarks of the respective sectors”. He also said that over the past decade the group has worked to improve its “debt metrics through our capital management strategy”.