On January 24, 2023, Hindenburg Research, a US-based stock-market research agency published a report titled: “Adani Group: How the World’s 3rd Richest Man Is Pulling the Largest Con In Corporate History.” Hindenburg said the report reveals the findings of 2-year investigation, presenting evidence that the INR 17.8 trillion (U.S. $218 billion) Indian conglomerate Adani Group has engaged in a “brazen stock manipulation and accounting fraud scheme over the course of decades.”
The report led to a major colapse of Adani Group stocks. Till February 3, Adani Group companies lost a total of Rs 9 lakh crore m-cap in the seven trading sessions on bourses. Many public institutions like LIC and SBI are under cloud over extending large loans to Adani Group. The development has been widely reported in international press thus tarnishing India’s image. Given the importance of this massive financial event to Indian economy, this topic is expected to be part of GD, Personal Interview and Extempore for MBA Admissions. Read this article as MBAUniverse.com presents all facts and perspectives on this topic.
Here are the key allegations from Hindenburg Research Report
- Report added that “Gautam Adani, Founder and Chairman of the Adani Group, has amassed a net worth of roughly $120 billion, adding over $100 billion in the past 3 years largely through stock price appreciation in the group’s 7 key listed companies, which have spiked an average of 819% in that period.”
- Hindenburg said its research involved speaking with dozens of individuals, including former senior executives of the Adani Group, reviewing thousands of documents, and conducting diligence site visits in almost half a dozen countries.
- One of the main accusations of the report was that the “group’s very top ranks and 8 of 22 key leaders are Adani family members, a dynamic that places control of the group’s financials and key decisions in the hands of a few.”
- It also said, the Adani Group has previously been the focus of 4 major government fraud investigations which have alleged money laundering, theft of taxpayer funds and corruption, totalling an estimated U.S. $17 billion.
- Report also added that Adani family members allegedly cooperated to create offshore shell entities in tax-haven jurisdictions like Mauritius, the UAE, and Caribbean Islands, generating forged import/export documentation in an apparent effort to generate fake or illegitimate turnover and to siphon money from the listed companies.
Defending its position, the Adani Group, in its 413-page response, said that the report was not merely an unwarranted attack on any specific company but a calculated attack on India, and its growth story. “It is tremendously concerning that the statements of an entity sitting thousands of miles away, with no credibility or ethics has caused serious and unprecedented adverse impact on our investors,” the Adani Group said.
Impact of the report
The Hindenburg report came at a time when the Adani group had decided to float a Rs 20,000 crore (USD 2.5 billion) follow-on public offer (FPO) by its flagship firm Adani Enterprises. Despite the report, the company went ahead with the FPO launch. The FPO sailed through the initial hiccups and was fully subscribed on January 31. The company claimed that the FPO saw 112 per cent subscriptions mainly due to HNI investors on the final bidding day. But within a day, the company declared it has cancelled its Follow-On Public Offering (FPO) and will return money to its investors.
The report led to a major colapse of Adani Group stocks. Till February 3, Adani Group companies lost a total of Rs 9 lakh crore m-cap in the seven trading sessions on bourses. The total market capitalisation of the group touched Rs 10 lakh crore on February 3 from Rs 19.2 lakh crore as of January 24, the day Hindenburg Research made its report public.
Amid the market rout, the Reserve Bank of India (RBI) asks banks to furnish details about their exposure to the Adani Group. State Bank of India (SBI), the largest bank by assets, said its overall exposure to the Adani Group is at 0.88 per cent of the book or around Rs 27,000 crore. Punjab National Bank (PNB) said its total exposure to the Adani Group of Rs 7,000 crore. Bank of Baroda said it has an exposure of Rs 4,000 crore.
Who is Hindenburg Research? Why is important?
So, who is Hindenburg Research and why is it so important. Founded by Nate Anderson, a CFA and a CAIA, Hindenburg Research reports specializes in forensic financial research. It has experience in the investment management industry spans decades, with a historical focus on equity, credit, and derivatives analysis. It says it uses fundamental analysis to aid our investment decision-making. In particular it focusses on companies which may have Accounting irregularities, Bad actors in management or key service provider roles, Undisclosed related-party transactions, Illegal/unethical business or financial reporting practices etc.
In past most of its predictions have come true. For instance, in 2020, Hindenburg wrote that Genius Brands, then trading at about $6.86 per share, would soon become a $1.50 stock due to extreme retail euphoria and pending dilution. By the end of July, just under two months later, shares were trading at $1.50, a decline of almost 80%.
At the time of writing this article on February 7, Adani Group’s stock have made a comeback. On Feb 7, Promoters of Adani group companies have repaid $1.114 billion before time to release some pledged shares in Adani Ports & Special Economic Zone, Adani Green Energy and Adani Transmission. The conglomerate said that this has been done "in light of recent market volatility and in continuation of the promoters’ commitment to reduce the overall promoter leverage backed by Adani listed company shares". With prepayment of $1.114 billion of share-backed facility ahead of maturity of September 2024, about 168 million shares (12 percent stake) of the promoters’ holding in Adani Ports, 27.56 million shares (3 percent stake) in Adani Green Energy and 11.77 million shares (1.4 percent stake) in Adani Transmission will be released.
Given the high-stakes and complexity of the financial systems and deal-structuring, Hindenburg-Adani Saga will not be over anytime soon. The impact of Hindenburg Research Report on Adani Group will be felt for some time to come.
