The latest chapter in the Adani stock imbroglio

As Adani Group faces allegations of overseas fund manipulation, here’s a closer look at the numbers and revelations.

The findings of the SEBI on stock price manipulation and insider trading in Adani stocks are difficult to take at face value.  | Photo Credit: AFP

On August 31, western media outlets published the findings of The Organized Crime and Corruption Reporting Project (OCCRP), a global network of investigative journalists, which accused the Adani group promoters of using overseas funds as fronts to boost their shareholding in group companies beyond prescribed limits and manipulate stock prices.

It also claimed that the Directorate of Revenue Intelligence (DRI) wrote to the chief of SEBI in January 2014 about suspected over-invoicing of capital equipment imports against Adani power projects, adding that there were indications that “a part of the siphoned-off money may have found its way to stock markets in India as investment and disinvestment” in the group itself.

This is the second major blow this year to the Adani group. On January 24, Hindenburg Research, a US-based investment research firm, published a report alleging massive stock manipulation and accounting fraud in the group. It said that Gautam Adani, founder and chairman of the Adani Group, had added over $100 billion to his personal worth in the past three years largely through his holdings in the group’s seven key listed companies, whose price skyrocketed by more than 800 per cent in that period.

Devil in the details

Here’s a lowdown of the OCCRP’s findings and why they matter.

First, what the law says (this will be important later).

According to The Securities Contracts (Regulation) Rules 1957, every private sector company listed in the stock market must ensure that at least 25 per cent of its shares is held by the public, wherein the public is defined as persons other than the promoter and promoter group, their immediate family, and subsidiaries or associates of the company. This is done so that enough shares are available for trading in the stock market and the correct market price is determined.

What the OCCRP says

1) The OCCRP said that Mauritius-based funds EIFF and EMRF had bought and sold large volumes of shares of four Adani companies between 2013 and 2018.

2) Two key foreign investors in these funds were Nasser Ali Shaban Ahli from the UAE and Chang Chung-Ling from Taiwan. Their investment was routed through four companies that they owned or controlled, and GOF, a Bermuda-based investment fund. The value of the investments of these two investors in Adani stocks was around $430 million in March 2017 (about Rs.2,795 crore). In January 2017, these two investors together held 3.4 per cent of the total shares in Adani Enterprises, 4 per cent in Adani Power and 3.6 per cent in Adani Transmission.

3) The OCCRP also said that UAE-based Excel Investment and Advisory Services Ltd, owned by Vinod Adani, brother of Gautam Adani and member of the promoter group, received over $1.4 million in “advisory” fees from EIFF, EMRF, and GOF between June 2012 and August 2014. The OCCRP report claimed that EIFF, EMRF, and GOF were buying Adani group stocks at the behest of Excel Investment.

4) The accusation is that these funds were fronts for Vinod Adani to acquire group company shares over and above what he already held in three Adani companies. Thus, the actual promoter group shareholding in Adani Enterprises and Adani Transmission was over 78 per cent in January 2017, in clear breach of the 75 per cent ceiling stipulated by The Securities Contracts (Regulation) Rules.

With the Adani Group being perceived as a repeat offender and SEBI itself facing accusations of regulatory failure, the responsibility now falls on the Central government to initiate a probe by a neutral institution into the entire matter, uncover the truth, and restore confidence in our stock markets.