The world’s third richest man has been accused of pulling the “biggest scam in corporate history” through India-based Adani Group Corporation.
US investor Hindenburg Research, which has started shorting the conglomerate via bonds, conducted a two-year investigation into boss Gautam Adani, who is worth $125 billion.
The firm alleges that Adani and his family controlled a network of offshore shell accounts, which they used to carry out corruption, money laundering and tax theft, while also siphoning money from the companies they owned.
“Adani has accomplished this gargantuan feat with the help of government enablers and a cottage industry of international companies that facilitate these activities,” the firm wrote in its report released Tuesday.
The Adani Group immediately dismissed the claims and expressed shock at the allegations, which cost the company $12 billion in market value and caused its flagship Adani Enterprises to fall almost 4 percent on Wednesday.
Gautam Adani, the third richest man in the world, has been accused by famed US investor Hindenburg Research of committing the “biggest fraud in corporate history”. Adani (left, pictured with his wife Priti) is worth $125 billion through the Adani Group conglomerate
Hindenburg’s two-year investigation alleges Adani, his family and close associates mixed money to manipulate stocks and cover up debt. Adani is among the most powerful men in India and remains a close ally of Prime Minister Narendra Modi. The two are pictured in 2019
Gautam Adani: The third richest man in the world worth $125 billion
Gautam Adani, 60, is Chairman of the Adani Group, one of India’s three largest industrial conglomerates.
He started his career as a diamond sorter in Mumbai in the late 1970s before joining his brother’s plastics business in 1981.
After securing a Deal Win Korea, he established the group’s flagship import-export business, Adani Enterprises.
His trade secret, as the Financial Times put it, was simple. “Earn a small amount in one business and then take on large debts against your income to fund expansion into another,” reads the broadsheet.
The group now has interests in ports, power generation and transmission, real estate, cement and a host of other industries.
Adani controls India’s largest port, Mundra Port, and became the country’s largest airport operator after acquiring a 74 percent stake in Mumbai International Airport in 2020.
Adani has been accused by his critics of using personal connections with Indian Prime Minister Narendra Modi to gain advantages.
With a net worth of $125 billion, Adani ranks only behind French luxury goods mogul Bernard Arnault and Tesla CEO Elon Musk.
In his scathing report, Hindenburg questioned how the Adani Group used its offshore entities in tax havens like Mauritius, the Caribbean Islands and the United Arab Emirates, adding that certain offshore funds and shell companies “secretly” own shares of Adani would have tied to the group -listed companies.
The short-seller claimed at least 28 of Shell’s companies were run by Adani’s older brother Vinod or his “close associates,” as Hindenburg highlighted Indian officials’ investigation into fraud allegations against the group.
According to officials in that investigation, Vinod would transfer money from offshore companies to private offshore trusts and family-owned companies. This money would then go to the companies in Mauritius before being used to invest in Adani Group shares.
“If the Adani Group secretly controls significant amounts of publicly traded stock without disclosure, the resulting stock price of the Adani publicly traded companies could be easily manipulated to meet the Adani Group’s immediate needs,” concluded Hindenburg.
The alleged money laundering would not only allow the conglomerate to manipulate stocks, but would allow its companies to “maintain the appearance of financial health and solvency” despite their debt, the short seller added.
Hindenburg said key Adani publicly traded companies had “significant debts” which left the entire group in a “precarious financial footing”.
The short-seller claimed that shares of seven listed Adani companies have 85 percent downside potential on a fundamental basis, driven by what they call “sky-high valuations.”
The report also highlighted that the Adani Group was the subject of four government investigations alleging that the conglomerate illegally benefited from government tax credit programs.
The research report, Hindenburg said, is based on a two-year investigation that included interviews with dozens of people, including former Adani Group executives, and a review of documents.
Pictured: Investigators outlined how Adani and his associates mixed money from their offshore entities to their companies
The Adani Group has denied the allegations against them, claiming the report is intended to hurt them ahead of their biggest second share offering, which is scheduled for Friday
The Adani group dismissed the US short seller’s claims as unfounded and said the time had come to tarnish his reputation ahead of a large stock offering.
Adani Enterprises will launch India’s largest public secondary offering on Friday, aiming to raise $2.5 billion to fund investments and pay down debt.
Adani Group Chief Financial Officer Jugeshinder Singh said in a statement the company was shocked by the report, calling it a “malicious combination of selective misinformation and outdated, unsubstantiated and discredited allegations”.
“The group has always complied with all laws,” the company said, without going into specific allegations by Hindenburg.
“The timing of the report’s release clearly betrays a brazen, malicious intent to undermine the Adani Group’s reputation, with the main aim of damaging Adani Enterprises’ forthcoming follow-up IPO,” he added.
After the report was filed, flagship Adani Enterprises fell 4 percent before stabilizing
The rating of Adani Transmissions also fell 9 percent on Wednesday
Shares of Adani’s newer cement company ACC also fell 8 percent
Along with the slump in Adani Enterprises, shares in Adani Transmission fell 9 percent, Adani Ports and Special Economic Zone slipped 6.3 percent. Adani’s young cement company ACC fell more than 8 percent.
In bond markets, US dollar-denominated Adani Green Energy bonds fell almost 15 cents to just under 80 cents against the dollar, Tradeweb data showed.
International bonds from Adani Ports And Special Economic Zone, Adani Transmission and Adani Electricity Mumbai posted similar declines.
The burglaries reflected Hindenburg’s findings. The short seller is a prominent research firm best known for its report that brought down electric car maker Nikola.
Hindenburg described the company as built on “dozens of lies,” which led to Nikola founder Trevor Milton resigning as chairman and being found guilty of securities fraud.
Nitin Chanduka, a Singapore-based analyst, told Bloomberg, “These are reputable short sellers. Their track record has been strong, with recent allegations against Nikola Corp. led to a 40 percent drop in share prices.’
Chanduka said if the allegations prove true, it could lead to “more regulatory oversight and scrutiny given the Adani Group’s systemic importance” in Asia.