What Lies Ahead for Adani Group? Analyzing the Hindenburg’s Research

Introduction

Adani Group is a multinational conglomerate headquartered in Ahmadabad. Chaired by India’s richest man and former world’s second richest man Gautam Adani. Adani and Hindenburg’s tussle is a global trotter. To understand everything about the Hidenburg-Adani controversy, first, understand the background of the Adani Group.

Adani Group is the Ahmadabad-based conglomeration, which owns a substantial amount of business in India, many claim that the Adani Group empire is built on forgery, manipulation, tax evasion, and illegal foundations, Adani Group is managed by the Adani family members. Members of the Adani family previously have run into controversies several times for tax evasion and other serious charges, yet they all came out clear. Adani group has great extension in India, but it is one of the biggest debt holders in India too. Reports claim that the Adani group was previously involved in four major government investigations on the charges for money laundering, tax evasion, and forgery totaling an estimated U.S. $17 billion.

Background of the Controversy

Going against a personality belonging to an elite class was long forbidden in India, as those who dared enough to stand against such giants either get overwhelmed by vandalism or end up locked up in jail. Yet the New York-based investment research firm Hindenburg published its report called “Adani Group: How The World’s 3rd Richest Man Is Pulling The Largest Con In Corporate History.’’ A compiled history of everything Adani Group has done to consolidate its business in India. Hindenburg quoted the report to be the most egregious example of corporate fraud in history.

Adani group owns seven key publicly listed equities (including adanient) with an evaluation of INR 17.8 trillion (USD 218 Billion); through their holdings, Adani Family amasses a fortune of over USD 120 billion, with over 100 billion dollars coming generated through manipulative meteoric appreciation in its stock prices. Adani groups own multiple arrays of businesses focusing majorly on infrastructure projects such as the development of mines, airports, ports, and power plants.

What’s the Whole Controversy About?

On January 24, 2023: Hindenburg a New York-based investment research firm owned by Nathan Anderson published a report named “Adani Group: How The World’s 3rd Richest Man Is Pulling The Largest Con In Corporate History” the articles described how Adani Group is illicitly consolidating its power in India “The most egregious example of corporate fraud in history”, this report is highly controversial, although the Adani group has rubbished the report; the report has already disclosed all the not-so-fairy tales of Adani group, pacifying the investors. The report provides the proof and history of the Adani group engaging in committing misconduct, which includes:

Part — I: Offshore funds and Shell entities tied to Adani Group owning stocks in Adani listed companies and its violation of SEBI exchange rules

Part II: Involvement and Record of stock ringing with notorious fraudsters

Part III: How the group funnels its transactions in and out of its empire

Part-IV: The Accounting Irregularities,Unstable CFOs and Dubious Dealings

Part- V: Government Investigations over the Scams

Part — VI: Investment Banks And Professional Investors Have Steered Clear Of Adani Listed Companies

Part- V: Adani Group’s Response

A Record Sheet or A Rap Sheet?

According to the reports Adani Group was previously involved in import/export scams — involving Iron, ore, diamond, and electric equipment-but Adani’s managed to come out clear as the investigations either got stonewalled or delayed by the government. The report also highlights that the Adani group was backed by its other family members who are managing Shell businesses offshore in Mauritius and Cyprus; they have been investing in Adani stock prices extravagantly, henceforth making Adani shares highly profitable and positive income flow.

Hindenburg report claims Gautam Adani’s elder brother Vinod Adani, has control over 38 shell entities located in Mauritius, Cyprus, UAE, Singapore, and other Caribbean islands. These entities had no independent addresses, no phone numbers and some were even suspiciously formed on the same day with no business purpose, no employee id, and only stock images, these entities serve the singular function of stock manipulation and laundering money via Adani’s private companies onto the listed companies’ balance sheets to maintain the appearance of financial solvency and health.

This stock manipulation in Adani-listed companies is not a surprise, prior there are many times when SEBI investigated and prosecuted 70 such entities and individuals for pumping Adani Enterprises. The constant changes in the CFOs within 8 years have also drawn suspicion on the internal financial control issues.

Aftermath of the Hindenburg Report

Adani group is already head over heels in debt, this got worse when some of the banks revealed the amount of debt that Adani owes this pacified the investors. Adani Enterprises has an actual debt of INR 413,443 million, more than its optimal debt of INR 185,309 million, this debt is also a growing concern for investors. As per the reports, between 2002 and 2022 Adani funded almost all of its growth with debt, despite the overwhelming debt in the year 2016–21 time period Adani used debt to pay dividends to investors.

Adani Group: Head Over Heels in Debt

The company’s operating income is hardly more than interest expenses. This will cause a lot of trouble for Adani Group, as its share prices are already slumping down, they might end up putting all of their profits and holding as collateral to repay the loan.

The Seven Companies of the Adani group are overvalued-in the past three years these companies have witnessed an incredible price upsurge- companies owned by the Adani Group are overvalued by 85 percent. What has grown suspicious more is that generally Infrastructure firms are sleepy and have a low growth rate, yet, Adani’s foray infrastructure brands’ performance was magnificent and was comparable to the frothiest of high-growth tech companies. Hindenburg’s reports that Adani has violated regulations to gain a full swing on the share market, the instant and enormous leverage is scrutiny worthy and it will unravel Adani’s business empire.

Will Collateral Pave the Way out of Debt for Adani?

Adani Group is actively investing in Ports and other infrastructures as they are favorable collateral. Although except for ports no other holdings can be advantageous, therefore Adani Group shall better focus on business, the game of debt and buying has proven fatal for the group. And the future can only be secured by winning back the confidence of investors and this situation has ideally caused Adani groups to put a restrain on their projects to resurge against the debt. Focusing on ongoing projects and business, will improvise the ongoing situation for the Adani group.