What’s going on with Adani Group? Hindenburg fraud allegations explained

Gautam Adani has risen from college dropout to become Asia’s richest man – but now he’s seen his empire rocked by a week of turmoil.

The Indian tycoon lost his title and tens of billions of dollars in personal wealth within days after a US-based short-selling firm accused him of ‘the biggest scam in the history of the world’. ‘business”.

Adani dismissed the allegations and accused the short seller, Hindenburg, of a “calculated attack” on his country.

But the claims triggered a meltdown for his business and sent shockwaves through the markets.

On Thursday, Adani dropped his flagship company’s planned share offering as his conglomerate’s losses topped $100 billion, heightening concerns over a potential wider impact on India’s economy.

Here’s what you need to know.

What are the charges?

Hindenburg Research published a report on Jan. 24 stating that Adani Group, one of India’s largest conglomerates, had “engaged in a brazen scheme of stock manipulation and accounting fraud over decades.”

The report was released days before a planned $2.5 billion share sale by Adani Enterprises, the conglomerate’s flagship company.

In addition to accounting fraud, Hindenburg also accused the Adani Group of being involved in billions of dollars in “suspicious transactions with its chairman’s brother, Vinod Adani, and his maze of fictitious offshore entities”, which he says the company used for the shares. handling.

Hindenburg has a habit of exposing alleged corporate wrongdoing while placing bets against those companies, a process also known as short selling. Hindenburg disclosed that he held short positions in Adani’s companies through assets traded in the United States and derivatives not traded in India, what the experts said positioned it to benefit from falling stock prices.

The report, which Hindenburg said was based on interviews with former executives and research of thousands of documents, raised concerns about high indebtedness and the activities of senior executives and concluded that seven of the companies in ‘Adani were overvalued.

What did Adani say?

Adani’s company hit back at Hindenburg, threatening legal action and accusing him of sabotaging the stock sale.

“The volatility in Indian stock markets created by the report is of grave concern and has led to unwanted anguish for Indian citizens,” the conglomerate said in a statement last week.

In another 413-page response a few days later, Adani dismissed Hindenburg’s accusations as groundless, calling the short seller “Madoffs of Manhattan.”

“This is not just an unwarranted attack on any particular company, but a calculated attack on India, the independence, integrity and quality of Indian institutions, and the history of India’s growth and ambition,” Adani’s statement read.

Hindenburg replied that only about 30 of those pages dealt with the issues raised in his report and that Adani had not answered 62 of his 88 questions.

“India’s future is being held back by the Adani Group, which has draped itself in the Indian flag while systematically plundering the nation,” the research group said. “We also believe fraud is fraud, even when perpetrated by one of the richest people in the world.”

Hindenburg Research and the Adani Group did not respond to a request for additional comment.

How bad was the damage?

Although Adani denied the allegations, the report prompted a sell-off of shares in the Adani Group’s listed companies, which Bloomberg said lost $107 billion in value.

Adani himself lost $48.5 billion of his $120 billion fortune, according to the Bloomberg Billionaires Index, where he dropped from third on the list to 13th. He also slipped a place behind his rival and fellow Indian tycoon Mukesh Ambani, the chairman of Reliance Industries.

The record domestic stock selloff had been seen as a measure of market confidence in Adani after the report, and it initially had enough investor support to proceed on Tuesday. But the conglomerate called it off Wednesday night, citing “market volatility.”

“This decision will have no impact on our existing operations as well as our future plans,” Adani said in a recorded video address aimed at calming investors that was released on Thursday, his first public comments since the crisis began.

Adani said the decision to drop the share offering was made “to protect investors from potential losses.”

“For me, the interest of my investors is paramount and everything else is secondary,” he said.

“We will continue to focus on executing and delivering projects on time,” he said.

But the damage may be done. Since Hindenburg’s report was released on Jan. 24, Adani Group companies have lost nearly half of their combined market value.

“Unless Adani manages to regain the confidence of institutional investors, stocks will plummet,” Avinash Gorakshakar, head of research at Mumbai-based Profitmart Securities, told Reuters.