Gautam Adani, one of the world’s richest men, has faced scrutiny since short seller Hindenburg Research accused his conglomerate of engaging in stock price manipulation and accounting fraud.
Hindenburg says the report, which was released last week, is the result of a two-year investigation. Adani Group has denied the allegations, calling the report “a malicious combination of selective misinformation and stale, baseless and discredited allegations”.
The Financial Times details Hindenburg’s allegations and the conglomerate’s response.
The role of Vinod Adani
Part of Hindenburg’s report hinges on the role it alleges Gautam Adani’s older brother Vinod Adani has played through a network of offshore entities he allegedly controls and which are domiciled in Mauritius. Mauritius has long been a favoured jurisdiction used by wealthy Indian elites to invest or park cash offshore. Vinod Adani could not be reached for comment by the Financial Times.
Hindenburg’s allegation: Vinod Adani controls a web of 38 Mauritius-based shell entities that have moved billions of dollars into both public and private Adani companies in India. Hindenburg claims these entities are involved in stock parking — the practice of selling shares to an intermediary to avoid disclosure or ownership requirements — as well as share price manipulation and money laundering.
Adani Group’s response: “Vinod Adani does not hold any managerial position in any Adani listed entities or their subsidiaries and has no role in their day to day affairs. As such, these questions have no relevance to the entities in the Adani portfolio and we are not in a position to comment on your allegations on the business dealings and transactions of Mr Vinod Adani.”
Addressing accusations that there is evidence of illegal activity, the Adani Group said: “[The allegations in question are] a selective regurgitation of disclosures from the financial statements of Adani entities to paint a biased picture. These disclosures have already been approved by third parties who are qualified and competent to review these (rather than an unknown overseas short seller) and are in line with applicable accounting standards and applicable law.”
Concealing ownership
Hindenburg alleges the Adani empire has used the Mauritius funds to conceal the true extent of the family’s ownership of Adani companies listed in Mumbai and skirt rules governing how much stock insiders can own.
Hindenburg’s allegation: Some of these offshore entities in Mauritius conceal their ultimate ownership through nominee directors and almost exclusively hold shares in Adani companies. The report says one such entity is London-based Elara, a firm it claims holds $3bn in Adani stocks, with one of its funds having 99 per cent of its assets in Adani. Elara did not respond to a request for comment.
Hindenburg alleges that another such fund is New Leaina Investments, which held $420mn of shares in Adani Green Energy until June-Sept 2021, according to the report. It is operated by Amicorp, an incorporation services firm that has established 17 offshore shells associated with Vinod, and three Mauritius-based offshore shareholders of Adani stocks, the report claims. Amicorp did not respond to a request for comment.
Adani Group’s response: “All transactions entered into by us with entities who qualify as ‘related parties’ under Indian laws and accounting standards have been duly disclosed by us. Further these have been carried out on arm’s-length terms in accordance with applicable laws. Further, these are also disclosed by us, are publicly available to all regulators and our stakeholders, and have been duly verified and audited by independent third parties who are competent and have the required expertise in this respect.”
Stock price manipulation
Adani Group’s Mumbai-listed stocks have soared in recent years, with shares in Adani Enterprises up more than 1,300 per cent since the end of 2019 even after the recent sell-off. One of the short seller’s central allegations is that the Adani Group has manipulated the share prices of its listed companies by using offshore entities.
Hindenburg’s allegation: Hindenburg alleges “up to 30%-47%” of so-called yearly delivery volume, a measure referring to shares that are purchased on a given day and held until the market close, in multiple Adani companies shares is accounted for by “offshore suspected stock parking entities”, and alleges that this indicates these companies may have been subject to manipulative trading practices.
Adani Group’s response: “Each of the entities referenced in queries above are public shareholders in the listed companies in the Adani Portfolio. Innuendoes that they are in any manner related parties of the promoters are incorrect. A listed entity does not have control over who buys/sells/owns the publicly traded shares or how much volume is traded, or the source of funds for such public shareholders, nor is it required to have such information for its public shareholders under the laws of India. Hence, we cannot comment on trading pattern or behaviour of public shareholders.”
Masking balance sheet strains
Analysts have previously expressed concerns over whether Adani Group’s rapid, debt-fuelled expansion is sustainable. The short seller alleges that these offshore entities are used to bolster the balance sheets of the Adani Group’s listed companies to allay concerns over their financial health.
Hindenburg’s allegation: Hindenburg claims that offshore Mauritius entities are used to funnel money to listed Adani companies via onshore private Adani companies, and that these funds make the listed companies appear more creditworthy.
Adani Group’s response: “The above cited transactions . . . are not ‘related party transactions’ under laws of Indian or accounting standards. Consequently, we are neither aware nor required to be aware of their ‘source of funds’. All transactions cited above between the Adani listed entities and the ‘private Adani entities’ . . . are related party transactions, which have been undertaken on arm’s-length terms and in compliance with applicable Indian laws and standards, and have also been fully disclosed as related party transactions.”
Lax financial controls
Hindenburg supplements accusations of fraud and share-price manipulation with allegations that Adani Group’s accounting and auditing standards are lax.
Hindenburg’s allegation: Hindenburg says that “virtually non-existent financial controls” at Adani Group were enabled by a high turnover of chief financial officers, with five stepping down within a period of eight years at Adani Enterprises. The short seller also claims that two of Adani Group’s listed companies, Adani Enterprises and Adani Total Gas, employs an auditor where partners were as young as 24 and 23 when they began working on the audits.
Adani Group’s response: “The truth is that several of the CFOs that Hindenburg claims have left are in fact still part of the organisation in various other capacities, including taking on larger or key roles as part of our growth stories.”
Regarding the suitability of its auditors, the Adani Group said: “All these auditors who have been engaged by us have been duly certified and qualified by the relevant statutory bodies who are responsible to determine these benchmarks. All our auditors have been appointed in compliance with applicable laws.”
