SHARES OF Adani Group companies lost over Rs 80,000 crore in market capitalisation Wednesday after New York-based investor research firm Hindenburg Research, which specialises in short selling, accused industrialist Gautam Adani’s companies of “brazen stock manipulation and accounting fraud scheme over the course of decades”.
Hindenburg Research disclosed in the report that it has “taken a short position in Adani Group Companies through U.S.-traded bonds and non-Indian-traded derivative instruments”. The report has been published just two days before the group’s flagship Adani Enterprises follow-on public offer of Rs 20,000 crore is scheduled to open for subscription on January 27.
Short sellers bet that the stock price of companies will fall. They borrow stocks to sell, and then buy back the stocks at a lower price to return to the lender, therein making a profit.
The Adani Group shares fell by up to 8 per cent, and the benchmark Sensex closed 1.27 per cent or 774 points down at 60,205.06 and the NSE Nifty Index fell 226 points to close at 17,891.95 with all-round selling by foreign and local investors dampening market sentiments.
In a statement, the Adani Group said, “The timing of the report’s publication clearly betrays a brazen, mala fide intention to undermine the Adani Group’s reputation with the principal objective of damaging the upcoming FPO from Adani Enterprises, the biggest FPO ever in India. The investor community has always reposed faith in the Adani Group on the basis of detailed analysis and reports prepared by financial experts and leading national and international credit rating agencies.”
Adani Group CFO Jugeshinder Singh said, “We are shocked that Hindenburg Research has published a report on January 24, 2023, without making any attempt to contact us or verify the factual matrix. The report is a malicious combination of selective misinformation and stale, baseless and discredited allegations that have been tested and rejected by India’s highest courts.”
According to market analysts, the sentiment was dented after worried investors dumped Adani Group stocks following the Hindenburg Research report. The market capitalisation of the Adani Group fell Rs 80,078 crore to Rs 18,37,978 crore in just a day. Adani Transmission plummeted 8.06 per cent, ACC 7.11 per cent, Ambuja Cements 6.83 per cent, Adani Port 6.03 per cent, Adani Power and Adani Wilmar 5 per cent, Adani Total Gas 3.61 per cent, Adani Green 2.12 per cent, and the flagship Adani Enterprises 1.18 per cent.
“From a solvency perspective, multiple listed entities in the group are highly leveraged relative to industry averages: Four of 7 of these entities have negative free cash flow, indicating that the situation is worsening,” Hindenburg Research said in its report. Key listed Adani companies have also taken on substantial debt, including pledging shares of their inflated stock for loans, putting the entire group on precarious financial footing, it said.
Hindenburg Research is now a prominent investment research firm founded by Nate Anderson. It is known for its critical reports, and had earlier targeted Nikola Corp, an electric vehicle manufacturer.
According to the research report, as many as five of seven key listed companies have reported ‘current ratios’ below 1, indicating near-term liquidity pressure, the report alleged. The report does not talk about Ambuja Cement and ACC which was acquired by Adani Group last year and only about the other 7 listed companies of the group.
When contacted, the CEO of a leading brokerage who did not wish to be named, said, “While Adani group shares have declined by up to 8 per cent following the Hindenburg report on the group, their weightage is not enough in the indices to lead a fall in premier indices. However, as banks having exposure to the group including SBI have fallen sharply by over 4 per cent following the report, that led to a decline in the key indices Nifty and Sensex.”
The Hindenburg report also claims to have investigated the complex web of offshore entities linked to the Adani Group. “Our research, which included downloading and cataloguing the entire Mauritius corporate registry, has uncovered that Vinod Adani (elder brother of group Chairman Gautam Advani), through several close associates, manages a vast labyrinth of offshore shell entities,” the report said.
“We have identified 38 Mauritius shell entities controlled by Vinod Adani or close associates. We have identified entities that are also surreptitiously controlled by Vinod Adani in Cyprus, the UAE, Singapore, and several Caribbean Islands,” it said. “Many of the Vinod Adani-associated entities have no obvious signs of operations, including no reported employees, no independent addresses or phone numbers and no meaningful online presence. Despite this, they have collectively moved billions of dollars into Indian Adani publicly listed and private entities, often without required disclosure of the related party nature of the deals,” it alleged.
“Evidence of stock manipulation in Adani listed companies shouldn’t come as a surprise. SEBI has investigated and prosecuted more than 70 entities and individuals over the years, including Adani promoters, for pumping Adani Enterprises’ stock,” Hindenburg report said.
The Adani Group, however, said that its investors are not influenced by one-sided, motivated and unsubstantiated reports with vested interests. “The Adani group, which is India’s leader in infrastructure and job creation, is a diverse portfolio of market-leading businesses managed by CEOs of the highest professional calibre and overseen by experts in various fields for several decades. The group has always been in compliance with all laws, regardless of jurisdiction, and maintains the highest standards of corporate governance,” Adani’s CFO Singh said.
Gautam Adani, Founder and Chairman of the Adani group, has a net worth of roughly $120 billion, adding over $100 billion in the past three years largely through stock price appreciation in the group’s seven key listed companies, which have spiked an average of 819 per cent during the three-year period.
