Adani vs Hindenburg

Adani vs Hindenburg

In this post we will discuss the ongoing tussle between Adani Enterprises and Hindenburg Research. As of today Adani Enterprises is half as valuable as it was 7 trading days ago.

When one of the biggest firm call off its FPO (Follow on Public Offer). We can get a glimpse on how big a threat this Hindenburg report might be for the Adani Group.

Lets check what has happened till now and how it will affect the Indian Stock Market.


Lets first get some background about Adani group and Hindenburg research company:

Adani Group:

  • Gautam Adani built his empire after he started his carrier as a commodity trader. A school dropout, Adani rose to become the Richest man in Asia. Pushing previous billionaires like Ambani’s and others to shadows.
  • His $220 billion empire spams across various categories like Ports, Airports, Power generation, mining, renewables, edible oils, media and cements. (recent acquisition of Ambuja and ACC Cements)
  • Until last week, Adani was the world’s third-richest man. But has dropped down the ranks to number 15 on the Forbes rich list. After the rout in Adani group stocks.

Hindenburg Research:

  • The firm was founded by Nathan Anderson in 2017 as a short selling company.
  • It also calls itself as a forensic financial research firm which analyses equity, credit and derivatives. It has a track-record of finding corporate wrongdoings and placing bets against the companies.
  • Short Selling: It is an act of betting against the Company’s Stock.
    • For example: You borrow a certain number of shares of a company from your friendly broker. And you sell these shares at the current market price — say Rs.100. At some point in the future when the stock price dips (to Rs.80). You buy the company shares from the open market and return it to the friendly broker. The transaction is settled and you make a decent profit (of Rs. 20).

Now that we know some background of both the companies lets look at what happened on January 24th when the report of Adani Group was released to public by Hindenburg.

The Story:

Hindenburg claims to have done 2 year research on Adani to bring this report,

Today we reveal the findings of our 2-year investigation, presenting evidence that the INR 17.8 trillion (U.S. $218 billion) Indian conglomerate Adani Group has engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades.

The above is the exact sentence by the report.

As this is a ongoing issue with lots of implications a lot things can change over the course of time. And if you are a existing investor in the firm and its subsidiaries and confused between “Buy/Sell”. Take this report with a pinch of salt. As a lot of things might get changed.

Below are both the reports attached and read them in full before forming an opinion and taking sides:

Hindenburgs’ recent target is Adani and they released a massive report last week. Outlining allegations of corporate fraud and stock market manipulation.

Meanwhile Adani thinks the research is flawed and Hindenburg’s motives are questionable. They argue that the report fails to make substantial allegations against the company.

Adani group also alleges that this is an attack on Indian Growth story by vested interests. And might sue the Hindenburg firm.

Now lets look at some serious allegations made on Adani Group:

  • Allegation 1:
    • Hindenburg believes several of Gautam Adani’s associates have had past run ins with the law and yet serve on the board right now. They give a few examples to prove their point. Chief among them is an investigation by the Department of Revenue Intelligence (DRI) that implicated Samir Vora, Gautam Adani’s brother-in-law in the diamond trading scam.
    • Adani’s Response: Adani dismisses these claims by stating that the order from the DRI is set aside by a higher authority (CESTAT) with a review petition being subsequently dismissed by the Supreme Court. They also note that other allegations outlined by Hindenburg have also similarly been dismissed by various adjudicating authorities and courts in India.
  • Allegation 2:
    • Next, Hindenburg alleges that several entities connected to Vinod Adani (Gautam Adani’s brother) have dealt with Adani companies (and shares) without disclosing the true nature of these transactions. For the uninitiated, it is a legal requirement for listed companies to outline “related-party transactions.” So these are grave allegations. Especially since Hindenburg believes that
      1. Vinod Adani dabbled with these stocks to artificially inflate their price
      2. He used off shore entities to move money from private companies (whose financials may not always be transparent) to Adani’s publicly listed companies — just to boost their financial health temporarily.
    • Adani’s response is this — “Vinod Adani does not hold any managerial position in any Adani listed entities or their subsidiaries and has no role in their day to day affairs. As such, these questions have no relevance to the entities in the Adani portfolio and we are not in a position to comment on your allegations on the business dealings and transactions of Mr. Vinod Adani.”
      • In the end Adani argues that Vinod Adani is not related to party. And do not intent list these dealings publically.
  • Allegation 3:
    • Hindenburg flags a particular transaction between Adani group companies and AdiCorp Enterprises — an entity allegedly owned by a friend of the Adani’s. 4 Adani companies lent $87 million to AdiCorp despite AdiCorp having made a measly $97,000 in profits. This, they believe is highly unusual considering the size of the loan. They also go on to note that AdiCorp immediately funnelled 98% of those loans to Adani Power — another inexplicable move. And so they conclude that Adicorp was simply used to route funds from various Adani Group companies to publicly listed Adani Power.
    • We can Summarize Adani’s response as “Adicorp is not a related party and as such they are under no obligation to divulge the details to their shareholders.” Adani however doesn’t explain why they extended the loan.
  • Allegation 4:
    • Hindenburg also lists other “suspect” transactions and asks the group for clarity. Chief among them include a ~$200 million loan made out by a “silver merchant” to Adani Infra (private company) and a ~$600 million loan made out by a Mauritius based entity to Adani Infra once again. Both entities are owned by people either directly or formerly associated with the Adani group. In its questionnaire, the research company asks Adani Group for the source of funds — with the tacit suggestion being that these entities were used to move money between group companies.
    • Adani’s response once again notes that these are not related party transactions and as such, they don’t offer clarification on the source of funds.
  • Allegation 5:
    • Hindenbrug alleges that Adani moved money into the listed companies and later moved it out when convenient, which in theory will greatly erode shareholder wealth.
      • One example they quote includes a payment made by listed Adani companies to private contractor PMC. The payments add up to $783 million over a 12-year time span. Hindenburg alleges that PMC project was simply a dummy firm for Adani group — based on charges framed by the Department of Revenue Intelligence.
    • Adani meanwhile points to an order by higher adjudicating authorities who note that the two firms are independent entities. The group dismisses the claim entirely based on this order.
  • Allegation 6:
    • Hindenburg also believes that Adani’s convoluted corporate structure is a deliberate design feature used to hide their many shady dealings. For instance, Adani’s 7 key listed entities collectively have 578 subsidiaries. They also allege that Adani firms in the past have seen a spate of exits — primarily their CFOs (chief financial officers). Adani Enterprises for instance has had 5 CFOs in the past 8 years. And despite the company’s seeming complexity, they’re audited by Shah Dhandharia — an entity with only 4 partners and 11 employees. Hindenburg believes that these are clear red flags.
    • Adani no doubt refutes these allegations. They argue that infrastructure companies are by design complex due to the very nature of their business. For instance, new infrastructure projects are housed in separate companies (SPVs) to protect the group’s downside and to meet certain regulatory requirements. So if you are dealing with multiple projects over several years, you are bound to have a whole host of new entities. They also argue that the CFOs have only resigned to take up newer, bigger roles in other Adani group entities. They also list several examples to make their point. Finally they argue that their accountants are perfectly capable of auditing their business while noting that several Adani entities are audited by the big 4 — the likes of EY, PwC , Deloitte and KPMG.
  • Allegation 7:
    • The research firm then points to a list of funds based in Mauritius who have seemingly invested nearly $8 billion in Adani group companies. Their allegation is simple — These funds almost exclusively hold massive shares in listed entities of Adani Group. They believe this is highly unusual for funds of this size. Take Elara India Opportunities Fund — According to Hindenburg, they’ve invested close to $3 billion in Adani group companies, with one of their funds deploying almost 99% of their capital in these entities. They also allege that some of the directors in these funds are loosely connected to Adani group companies. The CEO of one of these funds served as director in 3 companies alongside diamond merchant Jatin Mehta, whose son is married to Vinod Adani’s daughter.
      • So Hindenburg asks — Are they really acting independently? And if they are acting at the promoters’ behest, are they breaching SEBI rules on the amount of shares promoters (and their group) can hold in publicly listed companies? And if not, why are they holding Adani shares almost exclusively? And where did they get the money for all this?
    • For this Adani gave a curt reply: They note that these are all independent shareholders and any innuendos suggesting that they may be connected to Adani group promoters is incorrect. And as such they refuse to qualify these questions with a response arguing that they couldn’t possibly have any information about public shareholders.
  • Allegation 8:
    • Hindenburg also draws attention to Adani’s harsh response to people critical of Adani’s operations. They argue that the group has initiated legal action against journalists, despite Gautam Adani’s public claim that he welcomes criticism. So they ask — Why do this if you’re open to differing opinions?
    • Adani’s response is firm once again. We quote “Being open to introspection or understanding others point of view does not mean we have given up our legal right to defend ourselves, our businesses and other employees through proper legal channels. We have exercised our rights in this matter in due compliance with law and through proper judicial processes in this respect.

Currently as we speak the issue has reached to Indian Supreme Court, after a public interest litigation was filed seeking an investigation against US-based firm Hindenburg Research, whose report led to a massive plunge in the value of Adani Group shares in the stock market.

The plea has also been filed with market regulator Securities and Exchange Board of India (SEBI) to conduct a probe against the short seller and its associates for “exploiting and duping lakhs of innocent investors”.

The stock, which touched its all-time peak of Rs 4,189.55 on December 21, 2022, slipped to a 52-week low of Rs 1,017.10 on Friday, February 3, falling 75.72 per cent from its peak. Adani Enterprises has lost over Rs 2.88 lakh crore in market cap. On December 21, 2022, the market cap (at the close of trade) of the firm stood at Rs 4.45 lakh crore.

Lets us all wait and see where the story ahead. But if this fall happens the Indian markets will take a severe hit. And in the panic lots of shareholders might loose their wealth. But lets hope for the best.



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