Asias wealthiest person saw his fortune take a hit on Wednesday, after a famed U.S. short seller accused him of pulling the largest con in corporate history.
In a report published on Tuesday, Hindenburg Research said Adani Group and its founder Gautam Adani one of the richest people in the world had engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades.
Adani serves as the Indian conglomerates chairman.
Hindenburg Research has a history of shining a light on corporate malpractice, successfully predicting the demise or exposing the shortcomings of several companies, including Nikola, Riot Blockchain and China Metal Resources Utilization.
It announced on Tuesday that it had concluded a two-year investigation into Adani Group, which involved speaking with dozens of insiders, including former senior executives, as well as reviewing thousands of documents and carrying out diligence site visits in several countries.
Precarious financial footing
Adani Groups aggressive expansion efforts have seen it rack up massive debts.
The firms financial problems have been widely reported on, but Hindenburg warned that the companys use of its inflated stock as loan collateral was putting the entire group on precarious financial footing.
However, the problems with Adani Groups finances were much deeper than its stock being overpriced, Hindenburg said.
Through its wide-reaching investigations, Hindenburg said it had uncovered a vast labyrinth of offshore shell entities being managed by Adanis older brother, Vinod.
Thirty-eight of those shell companies were in Mauritius, the report claimed, with others discovered in Cyprus, the UAE, Singapore and the Caribbean.
The shells seem to serve several functions, including stock parking/stock manipulation and laundering money through Adanis private companies onto the listed companies balance sheets in order to maintain the appearance of financial health and solvency, Hindenburgs report said. This offshore shell network also seems to be used for earnings manipulation.
One offshore fund had allocated around $3 billion almost exclusively to shares of Adani Group companies, Hindenburgs report also claimed.
A former trader at the fund reportedly said it was obvious the Adanis controlled those shares, but that the fund had been intentionally structured to conceal their ultimate beneficial ownership.
In India, shares of publicly listed companies that are held by those involved with establishing or controlling the business must be disclosed by law.
The rules also dictate that listed firms have at least 25% of their shares held by non-promoters in order to mitigate manipulation and insider trading.
Four of Adanis listed companies are on the brink of the delisting threshold due to high promoter ownership, the report alleged.
Our research indicates that offshore shells and funds tied to the Adani Group comprise many of the largest public (i.e., non-promoter) holders of Adani stock, an issue that would subject the Adani companies to delisting, were the Indian securities regulators rules enforced.
As well as using offshore shell companies to hold stock, Hindenburgs researchers also detailed how the family was using them to send money to their publicly traded firms.
The funds then seem to be used to engineer Adanis accounting (whether by bolstering its reported profit or cash flows), cushioning its capital balances in order to make listed entities appear more creditworthy, or simply moved back out to other parts of the Adani empire where capital is needed, they said.
They noted that Adanis personal fortune had been boosted over the past three years by Adani Group stock price appreciation, with its seven core firms seeing an average price rise of 819% over that period.
However, they argued that these elevated prices and thus Adanis net worth could not be sustained.
Even if you ignore the findings of our investigation and take the financials of Adani Group at face value, its seven key listed companies have 85% downside purely on a fundamental basis owing to sky-high valuations, they said in Tuesdays report.
Baseless allegations
Representatives for the Adani Group did not respond to Fortunes request for comment on Hindenburgs investigation.
However, the organization publicly refuted the allegations on Wednesday, arguing that they had been made in an attempt to sabotage the success of Adani Enterprises upcoming Follow-on Public Offer (FPO), which is expected to go live on Friday, Jan. 27.
Last year, Adani Group announced it would inject more shares of Adani Enterprises one of its public divisions into the market after its stock price surged more than 3,300% in three years.
Since debuting on the stock market in the 1990s, shares of Adani Enterprises have seen their value rise by more than 50,000%.
On Wednesday, it was reported that the companys $2.45 billion secondary share offering Indias largest-ever FPO was oversubscribed by anchor investors.
Initial bids included offers from the Abu Dhabi Investment Authority, Citigroup and Morgan Stanley, according to news agency Reuters.
The report is a malicious combination of selective misinformation and stale, baseless and discredited allegations that have been tested and rejected by Indias highest courts, the companys CFO Jugeshinder Singh said in a statement on Wednesday.
The Group has always been in compliance with all laws, regardless of jurisdiction, and maintains the highest standards of corporate governance, he insisted.
Our informed and knowledgeable investors are not influenced by one-sided, motivated and unsubstantiated reports with vested interests.
Despite Singhs assertion that the investor community has always reposed faith in the Adani Group, Hindenburgs report triggered a massive sell-off of the corporations listed businesses on Wednesday.
On average, the groups listed firms saw more than 5% wiped off of their value during Mumbais trading session on Wednesday, according to the Financial Times amounting to a $10.8 billion hit on the companies combined market caps.
The retreat from the companys stock also had wider implications for Indian businesses, generating a ripple effect that saw Indian shares as a whole take a downward turn.
What does Adani Group do?
Headquartered in Ahmedabad, Adani Group is an Indian corporation comprised of seven publicly traded companies.
It has interests in energy, infrastructure, agriculture and transport.
The company, founded by Gautam Adani in 1988, employs more than 23,000 people.
Who is Gautam Adani?
As his companys stock nosedived on Wednesday, Adani personally lost almost $1 billion or 0.8% of his fortune, according to Bloombergs Billionaires Index, which ranks Adani as the fourth wealthiest person in the world.
Forbess list of the worlds richest people, which uses a slightly different methodology, puts Adani in third place above Amazon founder Jeff Bezos.
Last year, Adani briefly held the title of the Worlds Second Richest Person, as his fortune continued to climb while sinking U.S. tech stocks bit into the wealth of Bezos and other billionaires whose fortunes were tied to the success of Big Tech.
Bloomberg reported at the time that Adanis fortune had risen more than anyone elses in 2022.
Regardless of his position among the top five wealthiest people on earth, the self-made tycoon who describes his companys operations as nation building is firmly the richest person in Asia, with a net worth of around $119 billion.
However, Adanis phenomenal rise in wealth and power hasnt been without controversy.
In the past, Adanis close relationship with Indian Prime Minister Narendra Modi has led to allegations that his success has arisen from brazen cronyism.
The 60-year-old mogul controls Indias biggest port, Mundra Port, and acquired a 74% stake in Mumbai International Airport in 2020, according to Forbes, making him Indias biggest airport operator.
He also holds stakes in other airports around the country, after scooping up all six airports that were approved for privatization by the Indian government in 2018 after officials relaxed the rules about which companies were permitted to operate them.
Since 2020, his personal fortune has skyrocketed by more than 1,200%, data from Forbes shows.
