NEW DELHI — Shares of the Adani Group, the Indian energy and infrastructure conglomerate headed by one of the world’s richest men, Gautam Adani, plummeted Friday after a U.S. research firm published extensive allegations of fraud that rocked business circles in the world’s fifth-largest economy.
The firm said it believed Adani companies were dangerously indebted and its stock prices were overvalued by more than 80 percent. Hindenburg announced it had taken a short position, meaning it was betting that Adani shares would fall.
The Adani Group has denied the allegations and said it was considering legal action against Hindenburg. In a statement issued Wednesday, Chief Financial Officer Jugeshinder Singh called the report “a malicious combination of selective misinformation and stale, baseless and discredited allegations that have been tested and rejected by India’s highest courts.”
By the end of Friday, shares in Adani Enterprises, the group’s umbrella holding company, fell by more than 18 percent, while several other subsidiaries, including Adani’s renewable energy and electricity transmission businesses, fell by 20 percent. The seven publicly traded Adani companies lost roughly a combined $50 billion in market capitalization this week, according to Bloomberg News.
Scrutiny of Adani firms’ health expanded on Friday to affect India’s private- and public-sector banks, which hold a total of about 40 percent of the companies’ debt, according to CSLA, a Hong Kong-based investment bank. Analysts said Friday that the balance sheets of Indian banks were healthy enough to withstand the risks of holding Adani debt. Still, stocks for the Indian financial sector fell 2.5 percent.
The Hindenburg report and resulting stock collapse has dented the image of India’s leading business titan, a self-made billionaire who rose from obscurity to become a top supplier of everything from coal-fired power to shipping services to packaged foods, renewable energy and digital media. Until this week, Adani’s net worth seemed to grow exponentially, rising from $9 billion in 2020 to $127 billion in December, making him at one point the world’s second-richest person.
In its report, Hindenburg alleged that billions of dollars have been moved between Adani firms and offshore companies associated with Adani’s relatives to bolster the appearance of the companies’ financial health.
Hindenburg had timed its report to sabotage Adani’s secondary share offering this week, Singh said in a video released by the company, which showed him standing beside the Indian national flag.
The group’s apparent proximity to the Indian government has long been seen in Indian business circles as one of its advantages over competitors — but also a point of criticism.
While detractors argue Adani’s success was largely owed to his ties to Prime Minister Narendra Modi — who flew on an Adani corporate jet during his 2014 election campaign — Adani’s admirers argue that he has built crucial infrastructure that supports India’s growth, delivered employment for millions of people and carried out investments that have aligned neatly with the government’s policy goals.
Even while Indian leaders have announced ambitious goals to transition toward renewable energy, Modi’s government has repeatedly taken steps to aid Adani’s business, which derives the majority of total revenue from power generation, shipping, mining, and electricity transmission operations related to coal, The Washington Post found.
In its report this week, Hindenburg highlighted the company’s ability to circumvent regulator scrutiny and suppress criticism in the news media.
“A system is broken when corporate behemoths like Adani Group seem able run an intricate fraud in broad daylight and when ordinary citizens are terrified to speak out against those who use their power and wealth to suppress criticism,” it said. “We hope this report marks the beginning of a change.”
The investment firm said this week it would “welcome” a lawsuit from Adani in the United States and a chance to seek documents in a legal discovery process.