US-based Hindenburg Research Accuses Adani Group Of Share Rigging, Fraud

A US-based investment research firm, Hindenburg Research, alleged on Wednesday that the Adani group had engaged in “a brazen stock manipulation and accounting fraud scheme”. It also accused the conglomerate of improper use of offshore tax havens, and flagged concerns about the group’s high debt.

Shares of Adani group companies lost Rs 85,761 crore in market value after Hindenburg issued the report and said it had taken short positions in the group’s stocks.

The Adani group dismissed the report, calling it a “malicious combination of selective misinformation and stale, baseless and discredited allegations that have been tested and rejected by India’s highest courts”.

“The timing of the report’s publication clearly betrays a brazen, mala fide intention to undermine the Adani group’s reputation with the principal objective of damaging the upcoming follow-on public offering from Adani Enterprises," Jugeshinder Singh, chief financial officer of the Adani group, said in a statement.

The allegations by Hindenburg Research came just two days before the launch of the Rs 20,000-crore FPO. The anchor investors’ book, which opened on Wednesday, received demand worth Rs 9,000 crore from leading financial institutions, as against the allocation of Rs 6,000 crore worth of shares.

Hindenburg accused Adani family members of creating and managing “a vast labyrinth of offshore shell entities” in tax havens like Mauritius, Cyprus and the UAE. Some of these entities were used for market manipulation, claimed the report. The report identified 38 Mauritius-based entities controlled by Vinod Adani, the elder brother of billionaire Gautam Adani, and his closed associates.

The report talks about the coal import over-invoicing investigation by the Directorate of Revenue Intelligence (DRI) which involved other Indian companies and public sector firms. It also claimed that some of the group entities like Adani Enterprises and Adani Total Gas were audited by a small firm with only four partners and 11 employees. It said the group was previously investigated by four government agencies. This newspaper could not independently verify these allegations.

Hindenburg said even if investors ignore the findings of its investigation and take the financials of the Adani group at face value, its seven listed companies have 85 per cent downside purely on a fundamental basis owing to sky-high valuations.

The Adani group said it was shocked that Hindenburg Research published the report without making any attempt to contact it or verify the factual matrix. “The investor community has always reposed faith in the Adani group on the basis of detailed analysis and reports prepared by financial experts and leading national and international credit rating agencies,” its CFO said.

Singh said the group’s investors were not influenced by one-sided, motivated and unsubstantiated reports with vested interests. “The Adani group, which is India’s leader in infrastructure and job creation, is a diverse portfolio of market-leading businesses managed by CEOs of the highest professional calibre and overseen by experts in various fields for several decades. The group has always been in compliance with all laws, regardless of jurisdiction, and maintains the highest standards of corporate governance,” he said.

In February last year, Bloomberg reported that the US Justice Department was collecting a trove of information on dozens of investment firms and researchers including Hindenburg engaged in short selling as part of a sweeping US hunt for potential trading abuses.

Key allegations

• Dozens of shell firms controlled by Gautam Adani’s elder brother Vinod Adani or close associates in tax havens
• These firms seem to serve several functions, including stock manipulation and laundering money
• Independent auditor for Adani Enterprises and Adani Gas is a ‘virtually unknown firm’
• Adani firms have taken on substantial debt, putting entire group on precarious financial footing

(With inputs from Bloomberg, Reuters)