It took ten days for Gautam Adani to lose more than half his fortune. The 60-year-old founder of India’s Adani Group ranked third on the Forbes list of billionaires, with a net worth of $120 billion US. After losing about half of it, he is barely in the top 20.
The group itself shed more than $110 billion US in market value, according to CBC News. The trigger was a report from Hindenburg Research, a small New York-based short-seller, which accused the conglomerate of fraud and stock manipulation. The selloff forced Adani to abandon a $2.5-billion share offering.
What Hindenburg alleged
The report landed in late January and surprised investors. It charged the group with “brazen” accounting fraud, called it “the largest con in corporate history,” and put 88 questions to the company about its debt levels and its use of known tax havens. Hindenburg claimed the aim was to inflate the market value of Adani’s listed companies.
The firm has a stake in the outcome. It holds short positions, bets that prices will fall, on some internationally traded Adani bonds and derivatives.
Adani hit back with a 413-page rebuttal, calling the report “nothing but a lie” and a “calculated attack on India.” In a video posted on YouTube on Jan. 25, chief financial officer Jugeshinder Singh said: “The Group has always been in compliance with all laws, regardless of jurisdiction, and maintains the highest standards of corporate governance.”
A company built on a fast climb
Adani is a university dropout who started the business about 35 years ago and made his first money in trading and coal mining. The group later moved into construction, power generation, ports, airports, defence manufacturing and media. It has seven listed companies, India’s largest national portfolio of renewable energy assets and seven of the country’s airports, Mumbai International among them. Its shares had risen 2,500 per cent over five years.
“I don’t think anyone expected such a spectacular collapse,” said Hemindra Hazari, a Mumbai-based independent market analyst. “But everybody in the market knew that the huge growth in valuation was something which was unnatural.”
Hazari said the clarifications from the group had not calmed investors. Its bonds were trading at 70 cents to the dollar, which he called “bankruptcy and junk bond valuations.” The benchmark Nifty 50 slipped only one per cent, which to Hazari showed that “the markets do not see this as an Indian problem” but “an Adani problem.”
Regulator and politics
India’s markets regulator, SEBI, said only that it was committed to a “transparent, efficient manner” of market functioning, without naming Adani. Amarjit Chopra, a former president of the Institute of Chartered Accountants of India, told CBC News he was “a bit disappointed.” In his view the regulator should be asking where the funds are coming from.
Critics say Adani has benefited from a close relationship with Prime Minister Narendra Modi, who also comes from Gujarat. Opposition members of parliament disrupted sessions in both houses over several days, and hundreds of protesters took to the streets demanding a full investigation. Some scaled police barricades and were detained; others burned suitcases carrying images of Adani and Modi.
“It is clear that the prime minister is protecting [Adani],” Congress Party leader Rahul Gandhi told reporters. Modi’s Bharatiya Janata Party dismissed the statements as “wild allegations.”
Debt and recovery
The size of the group’s debt has raised doubts about whether its companies can cover their costs. To calm investors, it said it would repay $1.1 billion US in loans early; they were not due until September 2024 and included shares in Adani’s ports business. The stock recovered somewhat.
Chopra said confidence “will definitely be shaken,” but he does not expect lasting damage to India’s economy. “It’s not [the case] that India is Adani and Adani is India,” he said. “India is much bigger.”
