Hindenburg's Explosive Report on Adani Companies

SEBI Woke up Only After Hindenburg Report.

India was touted as the world’s top investment destination recently at the World Economic Forum in Davos.

The activist short-seller  Hindenburg Research, an US based forensic financial research firm which analyzes equity, credit and derivatives to look at man made disaster, mismanagement, undisclosed transactions and financial irregularities in accounting released a report on 24th January this year 2023 that charged Adani Group of brazen stock manipulation, accounting fraud and the operations of the group dubbed as the "largest con" in corporate history. 

Hindenburg claims to have researched for two years on the meteoric rise of share prices of Adani's public companies. Most of Adani companies have witnessed over a 100% increase in share prices in the last one year. Of the seven Adani Group public companies, Adani Power share price rose 293% within a year, followed by Adani Wilmar by 214%. The stock price of Adani Group's flagship company Adani Enterprises Ltd gained 123% last year 2022 and shot up 24% in the last month Jan 2023. Adani’s recent push into green energy has been the biggest contributor to his wealth gain. Shares of Adani Green Energy have surged over 5,500% in the past three years. 

If we go into the history of other reports and analysis on exposing frauds and financial irregularities of many other companies by Hindenburg, the data says that 76% of them have proved correct. But Nate Anderson, a certified chartered alternative investment analyst and the founder boss of Hindenburg is not pursuing his mission as a passion for cleansing the corrupt practices and irregularities in the world of financial markets or for his love of a clean corporate environment, corporate benefits and corporate welfare.

Hindenburg is in the business of making profit. Hindenburg is a short seller. A short seller makes gains on stock transactions by reversing the chronology of selling. In the normal way one makes profit by buying first and then selling when the selling price is higher than the cost price. A short seller goes the opposite way. He sells first without buying. In the stock market a short seller sells stocks of a particular company when the value is high. He buys the stock when its value falls in the market and delivers the stocks to whom he sold and thus making his profit. Thus a short seller first sells at a higher price and then delivers the stock at a specified time period after buying the stock at fallen value. It is a pure speculation business. There can also be a loss as the price may shoot instead of falling. The companies like Hindenburg choose a company that made a doubtful extraordinary financial jump and probe, research to introduce some exposé related to financial frauds and dubious irregularities. It is for sure not all short sellers are into Hindenburg type of practice to bring about exposé but Hindenburg does it through its reports and research to help itself short sell and make profits.  

The 129 page Hindenburg Report has alleged Adani Group of round tripping and money laundering to pump and dump its shares by the improper use of offshore tax havens and stock manipulation. Hindenburg alleged Adani group of purported use of offshore 38 shell entities owned and controlled by Adani’s close relatives and his brother Vinod Adani from tax havens like Mauritius along with several other firms based in the UAE, Cyprus, Singapore and several Caribbean islands to manipulate stock prices. The remittances received in tax haven countries where taxes are almost negligible are round tripped by Adani's shell companies on a nominal fee to invest in Adani group and thereby causing meteoric financial growth in Adani companies by laundered money.

Even the 413 page reply by the Adani group to allegations listed in the 129 page Hindenburg report failed to rescue Adani from panicked market sentiments and rather caused quite substantial damage to his personal fortune. Share prices of all of Adani Group’s companies fell drastically, a rout that has continued for six straight days after the release of the Hindenburg report. The Adani Group has lost up to $108 billion, including the tycoon’s personal wealth of $48 billion in a matter of a week. Chairman Gautam Adani who briefly managed to rise to the position of the second-richest person late last year, has now been relegated to the 21st position on the Bloomberg Billionaires List, and to the 22nd position on the Forbes Rich List.

Now the Switzerland-based investment banking company Credit Suisse and the wealth investment arm of Citigroup Inc have stopped accepting bonds and securities of Adani-led companies as collaterals for loans in their bid to intensify their scrutiny on the beleaguered Adani Group post allegations.

The Adani conglomerate is also being sidelined by the likes of S&P Dow Jones, which took a decision to exclude the Adani Enterprises scrip from its widely used sustainability indices from February 7.

Foreign investors have so far pulled out their investments worth $288.52 billion from Indian equities. Currently, there are 11,000 foreign funds registered with the SEBI.

Some ratings agencies like CRISIL and Fitch are said to have begun examining the risks associated with the Adani Group’s debt and their creditworthiness. Hence Adani Group’s entities are under continuous surveillance. 

Fears of misgovernance and corporate fraud have contributed to market mayhem led by Adani Group’s stocks.

The Reserve Bank of India (RBI) has sought details from banks about their exposure to the group.

According to a report by investment firm CLSA, the top five Adani group companies — Adani Enterprises, Adani Ports, Adani Power, Adani Green and Adani Transmission — have a consolidated debt of Rs 2.1 lakh crore.

State Bank of India (SBI) is yet to officially disclose its exposure. It could be over Rs 21,000 crore. Punjab National Bank (PNB) said its total exposure to the Adani Group is of Rs 7,000 crore. Bank of Baroda has an exposure of Rs 4,000 crore. Other banks have not yet disclosed their exposure. 

As much as 8% of LIC's equity assets under management, amounting to a gigantic sum of ₹74,000 crore, is in Adani companies and comprise its second-largest holding.

National Stock Exchange put three of Adani Group’s stocks of Adani Enterprises, Ambuja Cement and Adani Port on the additional surveillance measure framework or the ASM. 

Market regulator SEBI has asked the custodian banks to collect details about beneficial owners of offshore accounts and foreign portfolio investors (FPI) following the explosive allegations against the Adani Group companies by Hindenburg Research. Custodian banks are typically foreign banks that manage the cash flows of FPIs. The SEBI has sought details of the ultimate beneficial owners specifically in cases where the senior management official or fund manager has been listed as the beneficial owner. The SEBI would ask banks to liquidate the holdings of investors by March 2024 and would consider their investments ineligible if the custodian banks are unable to provide the details of these beneficial owners.   

It is beyond comprehension as to why the regulator SEBI has awakened now after the explosive report released by Hindenburg!  Many Indian journalists like Delhi based freelancer Ravi Nair, Bodhisatva Ganguli, Pavan Burugula, and Nehal Chaliawala of the Economic Times, Latha Venkatesh and Nimesh Shah of CNBC TV18, freelance journalist Paranjoy Guha Thakurta, news website Newsclick, and the news magazine Economic and Policy Weekly including politicians like Congress MP Rahul Gandhi and TMC MP Mahua Moitra – all from time to time brought irregularities of Adani's companies before the public inspite of persecution, arrest warrants, harassment, intimidation and mounting defamation cases on these journalists by Adani group. 

We know Adani is a money sac and a cashier for political parties. The present government will do her best to avoid situations that may help the entry of other political parties to consume Adani's cash and BJP's share.

Let's hope for the investigation by the regulator, banks, financial bodies and other investigative entities to heal the situation of the Adani group so that there should be a cleansing and correction to recoup the confidence of the investors and protect the health of the corporate environment. Let the regulator set precedence to keep a sharp surveillance on corporate deals, abrupt market surge and act in time. Let the Adani group conglomerate with huge assets, massive business infrastructure, manufacturing and servicing capacity, jobs provider for many and those who are directly or indirectly dependent on huge gamut of business activities stay safe.