Shares of Adani Group companies slumped by up to 8.1% on Wednesday, eroding the combined market capitalisation by nearly `87,000 crore, after US-based forensic financial research firm Hindenburg Research released a 103-page report alleging accounting fraud, stock manipulation and improper use of offshore tax havens by the group.
The Adanis, however, dismissed the report. “We are shocked that Hindenburg Research has published a report on 24 January 2023 without making any attempt to contact us or verify the factual matrix. The report is a malicious combination of selective misinformation and stale, baseless and discredited allegations that have been tested and rejected by India’s highest courts,” Adani Group CFO Jugeshinder Singh said in a statement Wednesday afternoon.
Adani Enterprises (AEL), the flagship entity of Adani Group, slid 1.5% on the day of commencement of its `20,000 crore follow-on offering.
Adani Transmission fell 8%, while Adani Ports and SEZ slipped 6%. ACC and Ambuja Cements tanked by about 7% each.
The Hindenburg report said Gautam Adani, founder and chairman of the Adani Group, had amassed a net worth of roughly $120 billion, adding over $100 billion in the past three years, largely through stock price appreciation in the group’s seven key listed companies, which have spiked 819% on an average in that period.
The findings were part of a two-year investigation by Hindenburg Research, which had taken a short position in Adani Group companies through US-traded bonds and non-Indian-traded derivative instruments.
Key listed Adani companies had taken on substantial debt, including pledging shares of their inflated stock for loans, putting the entire group on precarious financial footing, it said. Five of seven key listed companies have reported current ratios below 1, indicating near-term liquidity pressure.
“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,” said the report.
Three of the Adani group companies – Adani Wilmar, Adani Power and Adani Total Gas – have gained more than 100% in the past year. Flagship Adani Enterprises is up nearly 95% despite Wednesday’s fall and the recent wobble ahead of its FPO.
Hindenburg Research further alleged that many of the public funds exhibit flagrant irregularities such as being Mauritius or offshore-based entities, often shells, with beneficial ownership concealed via nominee directors, and with little to no diversification, holding portfolios almost exclusively consisting of shares in Adani listed companies. The funds remain part of an ongoing investigation by Sebi.
“Our analysis found that offshore suspected stock parking entities accounted for up to 30-47% of yearly delivery volume in several Adani listed companies, a flagrant irregularity indicating that Adani stocks have likely been subject to wash trading or other forms of manipulative trading via the suspect offshore entities,” the report said.
In his statement, Adani’s Singh said the timing of the report’s publication clearly betrayed a brazen, mala fide intention to undermine the Adani Group’s reputation with the principal objective of damaging the upcoming FPO from Adani Enterprises.
“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. Our informed and knowledgeable investors are not influenced by one-sided, motivated and unsubstantiated reports with vested interests,” he said.
This is the second instance in recent times when an international organisation has published an adverse report on the Adani Group. In August last year, Fitch group unit CreditSights’ report stated that the Adani group is deeply overleveraged and may land in a debt trap. However, following a meeting with the conglomerate’s top brass, CreditSights admitted later that it had made some misjudgments in its report.