US short-seller Hindenburg Research published a report on January 24 accusing Adani Group of improperly using offshore tax havens and raising concerns about the company’s large debt, which caused the Group’s stocks to crash.
The Group owns short holdings in Adani Group companies. According to Hindenburg Research, there is evidence that the Group has been involved in an extended period of flagrant stock manipulation and accounting fraud.
An Overview of Hindenburg Report on The Adani Group
According to a report by Hindenburg Research, the seven listed entities in the Adani group have an 85% fall on a fundamental basis because of their high valuations.
The report highlighted the company’s debt. “Key Adani publicly listed companies have also incurred significant debt, notably by pledging shares of their inflated stock as collateral for loans, placing the entire Group’s financial stability in jeopardy. There is immediate liquidity pressure as 5 of 7 significant listed companies had “current ratios” below 1, “the report claimed.
According to the report, family members of Gautam Adani, the Adani Group’s founder, and chairman hold 8 of the company’s 22 key positions.
The Adani Group has already been the subject of 4 significant government fraud investigations that have allegedly involved money laundering, the theft of taxpayers’ money, and corruption, with a combined value of an estimated USD 17 billion, according to the report.
NEW FROM US:
— Hindenburg Research (@HindenburgRes) January 25, 2023
Adani Group – How The World’s 3rd Richest Man Is Pulling The Largest Con In Corporate Historyhttps://t.co/JkZFt60V7f
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The report also claimed that members of the Adani family worked together to set up offshore shell companies in tax haven nations like Mauritius, the United Arab Emirates, and the Caribbean Islands. They then created forged import/export paperwork in an apparent effort to generate fake or fraudulent sales and extract money from the listed companies.
Adani’s Response To The Report
The Adani Group responded in a 413-page document with the following statement: “This is not just an unwarranted attack on any particular company but also a calculated attack on India, the independence, integrity, and excellence of Indian institutions, as well as the growth path and ambition of India.”
The Adani Group stated that it was extremely disturbing that the remarks of a company located thousands of kilometers away, with no credibility or ethics, had a serious and unheard-of negative impact on its investors.
On Which Company Reports were Given Earlier By The Group?
The Nathan Anderson founded research company is headquartered in New York and has previously published damning analyses on firms including Nikola, Yangtze River Port & Logistics, China Metal Resources Utilization, Predictive Technology Group, SmileDirectClub, WINS Finance, and SC Worx, among others.
Few people would have known anything about a company named Hindenburg Research up until a few days ago on the Indian stock market. But now everyone is aware because of the New York-based company’s damning research on Adani Group, which has been in the news recently due to its enormous stock price increase.
According to information on its site that is available to the general public, the research company that tries to unearth “man-made disasters floating across the market” has released reports on more than 15 entities since 2017.
Questions That Hindenburg Report Asked The Adani Group
The Hindenburg group asks quite a few questions to Adani in his report. Some of them are;
- The Directorate of Revenue Intelligence (DRI) charged Rajesh Adani, the younger brother of Gautam Adani, as a key player in a diamond trade import/export scheme in 2004–2005. After that, he was twice detained on suspicion of importing illegal coal and evading customs taxes and other offenses. Considering his history, why was he promoted to Managing Director at the Adani Group?
- The DRI charged Samir Vora, Gautam Adani’s brother-in-law, with leading a diamond trafficking scam and making many false claims to authorities. Why, given his background, did he promoted to Executive Director of the crucial Adani Australia division?
- Shares in Adani-listed firms are held, collectively and virtually entirely, by Mauritius-based organisations such as APMS Investment Fund, Elara India Opportunities Fund, Cresta Fund, LTS Investment Fund, and Opal Investments, for a total of close to USD 8 billion. What is the initial funding source for these organisations’ investments in the Adani companies, given that they are significant public shareholders in Adani?
- Recent requests for information under the right to information act confirm that SEBI is looking into Adani’s ownership of foreign fund stock. Does Adani have any information to confirm that this investigation is still active and to describe its current status?
Impact of The Report on The Indian Stock Market and FII
After dropping by 774 points a few days earlier, the Sensex lost 874 points for the week due to a report by the American company Hindenburg Research, which caused the stocks of Adani Group to fall. Before the presentation of the Union Budget and the results of the US Fed meeting the next week, the fear gauge index India VIX spiked 18%, reflecting the increased stress on Dalal Street.
As the overall market capitalization of companies listed on the BSE fell to Rs 269.7 lakh crore, Dalal Street investors saw their investments decrease by Rs 6.8 lakh crore.
The Nifty Bank fell more than 1,300 points or 3.1%, making bank stocks one of the hardest hit. PSU bank equities, which had been outperforming in recent months, were among the worst affected, suffering losses of up to 7% due to investors’ concerns over the possible effects of exposure to the Adani Group.
The sell-off disregarded all encouraging global indicators, including the overnight Wall Street surge and the buoyant atmosphere in Asia Pacific markets, which reached a nine-month high.
On the other hand, FIIs have holdings in all 10 Adani stocks. Still, their biggest wagers are on Adani Total Gas, Adani Enterprises, Adani Power, Adani Transmission, Adani Green Energy, and Adani Ports. The value of foreign investors’ investments fell to Rs 148,742 crore after they lost Rs 1,43,991 crore in 7 days.
Adani Total Gas, Adani Enterprises, Adani Green Energy, and Adani Transmission shares have all continuously been sold by FIIs over the past four quarters.
The End Line
Gautam Adani’s Group is facing challenges on many fronts due to the Hindenburg report. It is unclear how the tycoon will free his empire from Hindenburg’s stranglehold given its market cap losses, which totaled Rs. 10 lakh crore from the previous week alone, and the growing level of worldwide scrutiny.
