As Adani-Hindenburg battle intensifies, stock market rout hits $72 billion

The wealth of Gautam Adani is fast eroding after his stocks were some of 2022’s best performers.

Published : Jan 30, 2023 15:25 IST

Adani Group chairperson Gautam Adani.

Adani Group chairperson Gautam Adani. | Photo Credit: AFP/INDRANIL MUKHERJEE

Billionaire Gautam Adani’s vast Indian business empire lost billions of dollars more in value on January 30 after its rejection of claims of widespread fraud failed to reassure investors. The slump was sparked by a report by US investment group Hindenburg Research that alleged “brazen stock manipulation and accounting fraud scheme over the course of decades”.

The three-day selloff has now erased about $72 billion in market value, according to Bloomberg News. Until January 27 Adani’s firms recorded a slump of around $50 billion. The fire sale also saw the school dropout-turned-tycoon, who is seen as close to Prime Minister Narendra Modi, tumble from third on the Forbes real-time rich list.

On January 30, the 60-year-old was in ninth position in the ranking, which put his wealth at $85.2 billion. This meant he kept his crown as Asia’s richest man, although earlier in the day he was briefly overtaken by fellow Indian tycoon Mukesh Ambani.

Adani responds to Hindenburg report

Adani’s conglomerate said it was the victim of a “maliciously mischievous” reputational attack and on January 29 issued a 413-page statement that it said rebutted Hindenburg’s claims.

Dubbing Hindenburg the “Madoffs of Manhattan”—a reference to crooked financier Bernie Madoff—the statement said Hindenburg’s allegations were “nothing but a lie”. “This is not merely an unwarranted attack on any specific company but a calculated attack on India, the independence, integrity and quality of Indian institutions, and the growth story and ambition of India,” it said.

In its response, the Adani Group said none of the 88 questions in Hindenburg‘s report was “based on independent or journalistic fact finding”. It rejected numerous questions as baseless, misleading, or biased. In response to other questions, the group attached documents and tables of data and said it had followed local laws.

Adani also dismissed concerns over its debt-fueled growth, saying the “leverage ratios of Adani portfolio companies continue to be healthy and are in line with the industry benchmarks of the respective sectors”.

The allegations came as Adani seeks to raise an ambitious $2.5 billion via a stock sale and have pushed the price of Adani Enterprises shares below the price band of Rs.3,112-3,276 per share. The follow-on public offer (FPO), which was due to close on January 31, was subscribed only one percent at the end of its first day on January 27.

‘Fraud is fraud’

In response, the Hindenburg firm denied the accusations and said Adani’s response largely confirmed its findings and failed to address key questions. It said the group was trying to conflate its rise with the success of India itself.

“We believe India is a vibrant democracy and emerging superpower with an exciting future. We also believe India’s future is being held back by the Adani Group,” Hindenburg said in a statement. “We also believe that fraud is fraud, even when it’s perpetrated by one of the wealthiest individuals in the world,” it said.

“In terms of substance, Adani’s ‘413-page’ response only included about 30 pages focussed on issues related to our report,” it said. “The remainder of the response consisted of 330 pages of court records, along with 53 pages of high-level financials, general information, and details on irrelevant corporate initiatives, such as how it encourages female entrepreneurship and the production of safe vegetables.”

The selloff is fast eroding the wealth of Adani, Asia’s richest man, after his stocks were some of the best performers in 2022 not just in the local market, but also on the broader MSCI Asia Pacific Index.

But despite an early rebound in flagship Adani Enterprises on January 30, Adani’s response failed to stem intense selling pressure across most of his listed companies.

Shares in flagship Adani Enterprises gave up early gains to trade only 1.5 per cent higher in Mumbai. Adani Total Gas, Adani Transmission, and Adani Green Energy saw trading halted again—having suffered the same fate on January 27—after a 20-per cent plunge each.

Adani Power and Adani Wilmar also hit their circuit breakers after falling five per cent each. Adani Ports turned negative after a brief rebound, to trade 1.5 per cent lower.

Rise and rise of Gautam Adani

Gautam Adani and his family have built a vast fortune mining coal to fuel energy-hungry India’s fast-growing economy. Businesses in the conglomerate span industries including infrastructure, ports, data transmission, media, renewable energy, defense manufacturing, and agriculture. Adani’s own net worth has skyrocketed nearly 2,000 per cent in recent years.

With a net worth of nearly $125 billion late last year, Adani surpassed Amazon boss Jeff Bezos to briefly become the world’s second-richest man, according to Bloomberg’s Billionaire Index. After last week’s losses, Bloomberg’s index ranked him seventh richest in the world with a fortune worth $92.7 billion.

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The report from Hindenburg said it judged the seven key Adani-listed companies to have an “85% downside, purely on a fundamental basis owing to sky-high valuations”.

Hindenburg said its report, “Adani Group: How the World’s 3rd Richest Man is Pulling the Largest Con in Corporate History”, followed a two-year investigation. It listed 88 questions it invited the company to answer. Most of the allegations involved concerns about the group’s debt levels, activities of its top executives, use of offshore shell companies and past investigations into fraud.

Investors began dumping Adani-linked shares on January 25, wiping out some $48 billion in market value. Over the weekend, Adani said it would carry on with its share sale in Adani Enterprises as scheduled, despite the value of its shares falling well below the price range of the offering.

Possible legal action

In an interview with CNBC TV-18 on January 30, Adani’s chief financial officer Jugeshinder Singh said the group’s gross debt was $30 billion, out of which $9 billion was from Indian banks.

Late on January 26, Jatin Jalundhwala, head of the Adani group’s legal department, said the group was considering legal action against Hindenburg. Hindenburg said it stood by its report and would welcome legal action by the Adani group.

LIC to talk to Adani Group

The Life Insurance Corporation (LIC) on January 30 said it will talk to the management of Adani Group within days after US short-seller Hindenburg Research accused the conglomerate of high debt levels and the use of tax havens.

“Presently there is a situation that’s emerging and we are not sure what is the factual position ... Since we are a large investor we have the right to ask relevant questions and we will definitely engage with them,” LIC Managing Director Raj Kumar told Reuters.

(with inputs from AFP, AP, and Reuters)

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