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The Hindenburg-Adani issue - Is it really the largest con in corporate history?

02 Feb,2023 05:30 PM, by: Ashif Shamim
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The Gautam Adani-led Adani Group has become embroiled in a major controversy after American short-selling firm Hindenburg Research published a report stating that the business had pulled off the "biggest con in corporate history."

Over the course of the weekend, the Adani-Hindenburg issue turned into a verbal battle, with Adani Enterprises labelling Hindenburg Research as the "Madoffs of Manhattan" in a 413-page response to the company's initial accusations. The research firm's report is "a vicious combination of selective falsehoods and suppressed facts linked to unsubstantiated and discredited charges to drive an ulterior motive," the organisation claimed in the statement.

 

The Background

In a 106-page analysis published on January 24th titled: Adani Group: How The Worlds 3rd Richest Man Is Pulling The Largest Con In Corporate History, Hindenburg Research charged the Adani group with "brazen stock manipulation and accounting fraud." Hindenburg reacted on Adani's response, saying that it was "insubstantial" and only contained approximately 30 pages addressed on concerns linked to our findings.

The US firm stated that the remainder of the response was made up of 53 pages of high-level financial information, general information, and data on unrelated corporate activities, including how it supports female entrepreneurship and the production of safe vegetables, in addition to 330 pages of court records and other documents.

According to Adani, Hindenburg violated the securities and foreign currency rules, which it had previously mentioned in its original report, and was unethical. When it comes to Chairman Gautam Adani's elder brother Vinod Adani, his purported shell companies, and their alleged dealings with the Adani Group enterprises, the research firm claimed the Adani Group has avoided the most serious claims it has made.

The Hindenburg Research report from last week, which claimed that the Adani Group had engaged in corporate misconduct, leading to an inflated stock price and highly leveraged group firms, has brought the matter to this juncture. The charges were quickly refuted by Adani, who also threatened legal action against Hindenburg, in a swift response that did not convince Hindenburg to recant.

Meanwhile, the share prices of the Adani Group's listed companies dropped significantly on Wednesday, the day after the initial report was published, and continued to decline on Friday after markets reopened following the Republic Day break. The market capitalization of the listed Adani companies fell by a total of Rs. 4.17 lakh crore throughout the course of the two trading days.

The implications of the scenario transcended beyond stock prices. The Follow-On Public Offer (FPO) by Adani Enterprises has also had a distinctly dismal reaction, and it has given the Congress Party yet another target to use against the Modi administration for its allegedly strong ties to and tacit support of the Adani Group.

 

Response from Adani: "Attack on India's growth story."

Jugeshinder Singh, the group's chief financial officer, denounced the report as a "malicious combination of selected falsehoods and stale, unsubstantiated, and debunked charges" almost immediately as Adani Group stocks plummeted.

In a 413-page rejoinder published on January 29, Adani compared the Hindenburg report to a "planned attack on India," its institutions, and the country's "development story." The following themes dominated the answer.

 

Questioning Hindenburg's intentions

Adani's response called Hindenburg's report "nothing but a fraud" and questioned Hindenburg's motivations. According to the statement, Hindenburg produced the report with the "admitted goal of profiteering at the expense of our shareholders and public investors."

It said that Hindenburg was an"unethical short seller" who tried to "cause a decline in the share price of (Adani's)" and "make an erroneous gain."

Additionally, it charged Hindenburg with hiding important facts, including "details of its short positions" and "sources of its income."

 

Response from Hindenburg: "Can't equate Adani's success with India's”

The rebuttal claims that none of the important issues mentioned by the report were addressed in Adani's answer. The reply claims that Adani has instead "stoked a nationalist narrative" that aims to equate Gautam Adani, the company's chairman, and India's success with his spectacular ascent and wealth.

Adani's "413 page" answer, in terms of content, only had roughly 30 pages that dealt with topics relating to our study. The remaining portion of the response was made up of 330 pages of court documents, 53 pages of high-level financial information, general data, and specifics on pointless corporate initiatives, like how it supports female entrepreneurship and the production of safe vegetables, according to Hindenburg.

 

Hindenburg Responds to Adani Group's Response: "Fraud Is Fraud"

After the Gautam Adani group compared the damning claims by the US short seller to a "planned attack" on India, Hindenburg Research stated on Monday that fraud cannot be obscured by nationalism or a bloated reaction that ignores every significant charge that was raised. The Adani Group, according to the US-based financial research company, predictably attempted to shift the focus away from real difficulties and instead fanned a nationalist narrative.

The Adani Group has allegedly "attempted to connect its stratospheric rise and the fortune of its Chairman, Gautam Adani, with the prosperity of India itself," according to a strong-worded reaction from Hindenburg Research.

We disagree. To be clear, we believe India is a vibrant democracy and an emerging superpower with an exciting future. We also believe Indias future is being held back by the Adani Group, which has draped itself in the Indian flag while systematically looting the nation.”

We also believe that fraud is fraud, even when its perpetrated by one of the wealthiest individuals in the world," it further stated.

 

Final Thoughts

As the Adani Group faces its biggest test to date and Hindenburg Research referred to its stratospheric growth as "the largest scam in corporate history," worries have been raised about the vulnerability of India's top public sector banks and state insurance.

The Narendra Modi-led central government was the target of attacks from India's opposition parties, who claimed that the Adani Group was heavily exposed to financial institutions including the State Bank of India (SBI) and Life Insurance Corporation of India (LIC). The exposure has consequences for "financial stability and for the crores of Indians whose investments are stewarded by these pillars of the financial system," according to Congress general secretary Jairam Ramesh.

The banks insisted that there was nothing concerning about their exposure to Adani, claiming that it fell within the parameters set by the Reserve Bank of India. The RBI permits a bank to expose no more than 25% of its eligible available capital base to any one group of related entities. Bank officials at two other private lenders reportedly told Reuters that they were keeping a close eye on things but had not yet entered "panic mode."

Disclaimer: The opinions expressed in this article are those of the author's. They do not purport to reflect the opinions or views of The Critical Script or its editor.

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