Allegations of stock manipulation and accounting fraud from New York-based investor Hindenburg Research against Adani Group are piling pressure on the Indian conglomerate and its 60-year-old founder. Gautam Adani is one of Asia’s richest men and at one point last year was second only to Elon Musk in the world. Unlike Musk, Adani is relatively unknown outside his home country. Here’s some background on him and what’s going on.
1. Who is Gautam Adani? What’s his net worth?
Adani was born to a small textile merchant family in 1962 in the western industrial state of Gujarat. He dropped out of university and began his career sorting diamonds for a firm in the financial hub of Mumbai. He later imported materials used in manufactured goods and by the mid-1990s was managing the Mundra Port, which he now owns. While his net worth took a beating in the days after Hindenburg’s report was published on Jan. 24, he was still one of the richest men in the world according to the Bloomberg Billionaires Index.
2. How does Adani make money?
Adani Group today comprises half a dozen major companies with interests ranging from energy to transportation and infrastructure development. It’s India’s largest port operator and manages some of the country’s biggest airports. Adani Enterprises, the group’s listed trading house, reported $9.3 billion in sales in the year through March 31, 2022.
3. What are Adani’s companies?
In addition to Adani Enterprises, which is also in coal mining, there are:
Adani Green Energy Ltd. (Renewable power generation)
Adani Transmission Ltd. (Power transmission)
Adani Total Gas Ltd. (Gas distribution)
Adani Power Ltd. (Coal-fired power generation)
The Adani Group also runs a real estate business, a shadow banking firm named Adani Capital and an edible oil and food business via a venture with Singapore-based Wilmar International Ltd.
4. What are Adani’s political connections?
The tycoon is seen as closer to Prime Minister Narendra Modi, who also hails from Gujarat state, than any other Indian billionaire. Adani’s corporate strategy has run in parallel with Modi’s efforts to develop India’s $3.2 trillion economy. When Modi promised to bring reliable electricity to more Indians, Adani doubled down on coal-fired power production. The alignment extends to foreign affairs. In 2021, Adani began construction of a major port facility in Sri Lanka. Officials from both countries said the plan was encouraged by the Modi government, which wants to curb Chinese influence in the island nation. Whether building expressways or upgrading data centers, Adani can be counted on to provide money, infrastructure, or expertise, whatever the policy priority.
5. What are Hindenburg’s main allegations?
Hindenburg, founded by short-seller Nathan Anderson, issued a 100-page report accusing the Indian conglomerate of using a web of companies in tax havens to inflate revenue and stock prices, even as debt piled up. Among the allegations:
• It identified 38 Mauritius shell entities controlled by Adani’s brother, Vinod Adani, or his close associates plus entities controlled by him in other tax havens.
• The offshore shell network seems to be used for earnings manipulation.
• Adani Group has previously been the focus of four major government investigations relating to allegations of fraud.
• Adani Enterprises and Adani Total Gas appear to be audited by a tiny firm, with no current website, only four partners and 11 employees, and which has audited just one other listed firm.
• The auditor “hardly seems capable of complex audit work,” it said, when Adani Enterprises alone has 156 subsidiaries and many more joint ventures.
Hindenburg also said it had taken a short position — basically a bet that the stock price would go down — in Adani’s companies through US-traded bonds and non-Indian-traded derivatives. The shares in fact plummeted, erasing tens of billions of dollars in market value from Adani’s flagship. A record $2.4 billion follow-on share sale was canceled after it was fully subscribed on the final day, with the company board saying that going ahead wouldn’t be “morally correct.”
6. How did Adani respond?
In a rebuttal published Jan. 29, Adani said that it had addressed some 65 of the 88 questions raised by Hindenburg in public disclosures. It described the short seller’s conduct as “nothing short of a calculated securities fraud under applicable law.” The group said it would “exercise our rights to pursue remedies to safeguard our stakeholders before all appropriate authorities.” Hindenburg then said Adani’s response ignored all its key allegations and was “obfuscated by nationalism.”
7. What is Hindenburg Research?
Anderson’s firm — technically a research and trading outfit, not a hedge fund with outside investors — is less than five years old and wagers its own money in the markets. Even in Manhattan’s financial circles, Anderson is hardly a big name. The closely held firm specializes in forensic financial research, according to its website. It first attracted Wall Street’s attention in 2020 for raising serious questions about electric-vehicle makers Nikola Corp. and Lordstown Motors Corp.
--With assistance from Shikhar Balwani and P R Sanjai.
(Updates with the termination of the stock offering. An earlier version corrected the spelling of Shuli Ren in Reference Shelf)
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