Shares linked to the Adani Group fell in Indian trading here on Wednesday after short-sale specialist Hindenburg Research opened fire on the conglomerate, alleging it "has engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades."
It's a bold call. Adani Group stocks have been some of the best-performing holdings in India since the Covid-induced plunge in Indian markets in spring 2020. Flagship Adani Enterprises has been the star performer, up from 128 rupees per share in March 2020 to 3,405 rupees per share now -- a 25-bagger.
Adani takes its name from founder Gautam Adani, who started the conglomerate with Adani Enterprises as a commodities trading house.
As a result of the share hike in multiple companies he controls, Gautam Adani led the world in wealth gain in 2022, Forbes reports, adding US$55 billion to what was a US$134 billion fortune at the end of last year. Many a billionaire lost heavily in last year's tech selloff, but the rapid rise in Adani stocks shares propelled Gautam Adani's wealth higher. Adani's net worth has taken a slight hit so far this year, but he is still the richest person in Asia, by Forbes count, and third richest in the world behind Bernard Arnault at the LVMH luxury goods empire (LVMUY) and Tesla (TSLA) figurehead Elon Musk.
Hindenburg claims it has conducted a two-year investigation into the Adani Group, holding dozens of interviews, including with former Adani executives, performing due diligence "in almost half a dozen countries" and reviewing thousands of documents. "Even if you ignore the findings of our investigation and take the financials of Adani Group at face value, its 7 key listed companies have 85% downside purely on a fundamental basis owning to sky-high valuations."
Hindenburg notes that Adani companies have pledged their shares at the current high prices for loans. This puts the "entire group on precarious financial footing," the short seller said, with five listed entities reporting current ratios of below 1 and facing "near-term liquidity pressure."
After the report, we're seeing the biggest declines with electric utility Adani Transmission (NSE:ADANITRANS), down 8% in late afternoon trade on Wednesday in Mumbai, and with ports operator Adani Ports and Special Economic Zone (NSE:ADANIPORTS), off 6% in afternoon trading. Their concrete pouring affiliate Ambuja Cements (NSE:AMBUJACEM) was down 7%.
Foodstuffs manufacturer Adani Wilmar (NSE:AWL) was down 5%, as was thermal power producer Adani Power (NSE:ADANIPOWER). Natural gas distributor Adani Total Gas (NSE:ATGL) was down nearly 4% and renewables wind-and-solar power generator Adani Green Energy (NSE:ADANIGREEN) was 2.3% lower.
Flagship Adani Enterprises (NSE:ADANIENT) fell as much as 3% early in the day. It is the only one of the group to show much recovery, down a slim 1% in afternoon trading in Mumbai.
The effect has been enough to drag down the broader Indian market. The Sensex was down 1.3% at this writing on Wednesday.
Adani counters that the Hindenburg report is a "malicious combination of selective misinformation and stale, baseless and discredited allegations that have been tested and rejected by India's highest courts." It says the timing is clearly intended to undermine a follow-on stock offering from Adani Enterprises that would be the biggest such stock sale in India. Adani said Hindenburg hasn't made an attempt to "verify the factual matrix."
Adani Enterprises is due to launch the secondary share sale on Jan. 27, looking to raise US$2.5 billion. Prospective anchor investors bidding to take a chunk of the shares include the Abu Dhabi Investment Authority and Morgan Stanley (MS) , Reuters reports.
Hindenburg does dredge up four fraud investigations by the government into alleged money laundering and corruption, with the Adani family setting up offshore shell companies in Mauritius, the function of which the authorities are investigating. Hindenburg said it has identified 38 Mauritius shell companies that are controlled by Gautam Adani's elder brother, Vinod, or close associates, as well as entities Vinod controls in Cyprus, the United Arab Emirates, Singapore and the Caribbean.
"Many of the Vinod Adani-associated entities have no obvious signs of operations, including no reported employees, no independent addresses or phone numbers and no meaningful online presence," Hindenburg says. "Despite this, they have collectively moved billions of dollars into Indian Adani publicly listed and private enterprises, often without required disclosure of the related party nature of the deals."
The short seller goes on to outline what it said are irregularities in the operations of Adani entities, posing at the end of its report 88 questions for Gautam Adani. If he "truly embraces transparency, as he claims, they should be easy questions to answer," Hindenburg said. The company said it has taken short positions in U.S.-traded Adani corporate bonds and non-Indian derivatives.
Hindenburg, which was founded by former hedge fund allocator and Israeli ambulance medic Nate Anderson, previously has targeted the would-be electric truck maker Nikola Corp. NKLA as well as the Chinese small-business lender WINS Finance and the animation house Genius Brands GNUS, all before precipitous falls in their share prices. Hindenburg's interest has often been prompted by rapid share price increases in the run-up to its reports.
The Adani Group said it will shake off the report and its conclusions. "Our informed and knowledgeable investors are not influenced by one-sided, motivated and unsubstantiated reports with vested interests," the group's CFO, Jugeshinder Singh, wrote in reply. The Indian conglomerate left it at that and hasn't yet said whether it would address Hindenburg's list of questions and concerns.