The market rout suffered by tycoon Gautam Adani is the latest corporate scandal to plague one of the world’s largest economies despite Prime Minister Narendra Modi’s efforts to root out corruption.
Properly investigating the claims of fraud that triggered the sell-off in Adani’s companies will be a key test for “India Inc” as the country seeks to attract foreign investment and rival China economically in the 21st century, analysts say.
In its breakneck expansion, Adani’s vast business empire conducted “brazen stock manipulation and accounting fraud” that amounted to “the largest con in corporate history”, according to US short-seller group Hindenburg Research.
Adani has denied the explosive claims, which accuse the companies of inflating stock prices using offshore tax havens. But an avalanche of selling by spooked investors has wiped more than $100 billion from the group’s market value since last week.
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Most damning for Modi’s government is Hindenburg’s assertion that Adani’s dodgy activities “seem to be enabled by virtually non-existent financial control”.
Adani has used his “immense power to pressure the government and regulators to pursue those who question him”, the group said, with investors, journalists, citizens, and even politicians “afraid to speak out for fear of reprisal”.
Good times king
The list of corrupt past moguls is long, from fugitive jeweller-to-the-stars Nirav Modi to Vijay Mallya, the “king of good times” behind Kingfisher beer.
Nirav Modi fled the country in 2018 after being accused of defrauding one of the largest banks out of $1.8 billion. Mallya left the country in 2016 owing more than $1 billion after allegedly defaulting on loan payments to a government bank and misusing the funds.
Both saw their empires collapse under Modi, which helped raise hopes that along with giving regulators more powers he was serious about tackling wrongdoing.
Modi’s demonetisation drive in 2016—withdrawing almost 86 per cent of bank notes—was catastrophically handled but the stated aim was to root out corruption and bring all transactions out of the shadows. “I would actually really compliment Prime Minister Modi,” Tim Buckley, an Australian energy analyst who monitors India, told AFP. “Seven years ago, crony capitalism was endemic in India.”
Gujarat connection
But Adani’s rise could be seen as telling another story, with the mogul’s ascent mirroring the meteoric political career of Modi. He linked hands while Modi ran Gujarat, and when he became Prime Minister their close cooperation went national, enabling Adani to expand into virtually every area of the economy.
That includes ports, coal, and solar power, with critics saying Adani was able to out-compete rivals to win more and more business—with insufficient oversight—and take on ever more debt.
But independent market analyst Ambareesh Baliga said that he believes Adani is an isolated case, pointing to India’s strong economic growth under Modi. “As of now, I wouldn’t paint India Inc with the same brush, because the report was basically on the Adani Group,” Baliga told AFP. “In India, corporate governance has improved a lot over the last decade or more. It’s not the same as what it was two or three decades back.”
Nonetheless other specialists said authorities must still be seen to investigate Hindenburg’s claims properly.
The Securities and Exchange Board of India (SEBI) did not respond to AFP’s request for confirmation on February 3 on whether it was probing Hindenburg’s allegations. Hindenburg’s report said that SEBI had been investigating suspicious Adani stakeholders based in Mauritius back in 2021 but had not taken any action more than a year later.
“Are they asking questions, demanding disclosures? All that is extremely critical,” said independent analyst Srinath Sridharan. “This also will set the tongues wagging about the true independence of the regulator. Are they really independent? And do they have a mind of their own asking questions?”
Adani denies rise due to Modi
Meanwhile, Gautam Adani denied on February 3 that his rise to become Asia’s richest man—a title he has lost in a phenomenal stock rout—was due to Prime Minister Narendra Modi, as shares in his conglomerate slumped again.
His listed units’ combined market capitalisation has collapsed by more than $120 billion—about half of the group’s value—since US short-seller Hindenburg Research, which makes money by betting on shares falling, released an explosive report last week. It accused Adani of accounting fraud and artificially boosted its share prices, calling it a “brazen stock manipulation and accounting fraud scheme” and “the largest con in corporate history”.
“These allegations are baseless,” Adani told India Today television on Febraury 3, adding that their shared origins made him an “easy target” for such claims. “The fact of the matter is that my professional success is not because of any individual leader,” he insisted.
His comments came as shares in his flagship firm Adani Enterprises were repeatedly suspended on the Bombay Stock Exchange, hitting multiple trading stops on the way to falling by 30 per cent before paring losses.
Adani Power, Adani Green Energy, Adani Total Gas—in which French giant TotalEnergies has a 37.4 per cent stake—and Adani Transmission were also suspended when they hit their limits.
Parliament was adjourned for a second straight day on Feburary 3 after opposition lawmakers again demanded the government grant a debate on Adani and Indian financial institutions’ exposure to the group.
Share sale cancelled
Adani himself has seen his fortune plummet by tens of billions of dollars, dumping him out of the real-time Forbes rich list top 20, where he used to be third. A 60-year-old publicity-shy school dropout, he has seen his operations expand at breakneck speed, with Adani Enterprises shares soaring more than 1,000 per cent over the past five years.
But late on February 1, his main firm cancelled a $2.5-billion stock sale meant to help reduce debt levels—long a concern—restore confidence, and broaden its shareholder base.
The issue failed to attract retail investors and only sold out thanks to large institutional buyers, fellow Indian moguls, and $400 million from the United Arab Emirates’ IHC.
Big banks including Credit Suisse and Citigroup have stopped accepting Adani bonds as collateral for loans to private clients, according to Bloomberg News, fuelling worries about how the conglomerate will raise fresh funds. Bonds nonetheless rallied slightly on February 3 after Goldman Sachs and JPMorgan bankers told clients that parts of Adani’s portfolio remained strong, Bloomberg reported, citing unnamed sources.
In response to Hindenburg’s report, the Adani Group said it was the victim of a “maliciously mischievous” reputational attack and issued a 413-page statement on January 29 that it asserted showed Hindenburg’s claims were “nothing but a lie”. Hindenburg said in response that Adani had failed to answer most of the questions raised in its report.
Analysts say that the turmoil has hurt India’s image just as it seeks to woo overseas investors away from China.
Bloomberg reported that the RBI has asked lenders for details of their exposure to the Adani Group, quoting unnamed sources. In his interview on February 3, Adani said that only 32 per cent of his firms’ loans were owed to Indian banks, with almost half their debt obtained through international bonds.
(with inputs from AFP)
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