JANUARY 27, 2023
Asia’s richest man is rocked by a U.S. short-seller’s allegations of fraud and money laundering.
Suspicion is creating chaos in the empire built by the Indian billionaire Gautam Adani, who since last year has become the richest man in Asia.
Adani, 60, saw his fortune jump by more than $40 billion last year, according to the Bloomberg Billionaires Index. While the fortunes of a number of tech billionaires were melting, this leap propelled him into the elite holders of the world’s biggest fortunes..
He managed to rank as the second richest person behind Elon Musk, Tesla’s CEO. He fell back to finish the year in third place. And he’s currently the fourth richest person in the world with a net wealth valued at $113 billion as of Jan. 26, according to the Bloomberg Billionaires Index.
Now, as he tries to establish himself on the world stage, observers can expect his wealth to dwindle further. That’s because for the past two days he’s been caught up in what appears to be a nightmare.
Short-Seller Hindenburg’s Allegations
The New York investment firm Hindenburg Research has announced that it shorted stocks of the Andani conglomerate through U.S.-traded bonds and non-Indian-traded derivative instruments.
This means that Hindenburg Research, a well-known short-seller, is betting on a short-term drop in the prices of these equities.
The short-seller explains that the bet stems from alleged illegal practices on the part of the Indian tycoon’s conglomerate.
“We have uncovered evidence of brazen accounting fraud, stock manipulation and money laundering at Adani, taking place over the course of decades,” Hindenburg wrote in a report.
“Adani has pulled off this gargantuan feat with the help of enablers in government and a cottage industry of international companies that facilitate these activities.”
The report describes a galaxy of shell entities based in tax havens — the Caribbean, Mauritius and the United Arab Emirates — controlled by the Adani family.
“The Adani Group has previously been the focus of 4 major government fraud investigations which have alleged money laundering, theft of taxpayer funds and corruption, totaling an estimated U.S. $17 billion,” Hindenburg said.
“Adani family members allegedly cooperated to create offshore shell entities in tax-haven jurisdictions like Mauritius, the UAE, and Caribbean Islands, generating forged import/export documentation in an apparent effort to generate fake or illegitimate turnover and to siphon money from the listed companies.”
The Adani Empire responded in two separate statements, one the day after the report was released and the other the following day. It rejects all these accusations and threatens to resort to the legal process to defend itself.
“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,” commented Jugeshinder Singh, Adani Group’s chief financial officer, in a statement on Jan. 25.
Adani Threatens ‘Punitive Action’ in Court
“The maliciously mischievous, unresearched report published by Hindenburg Research on 24 Jan 2023 has adversely affected the Adani Group, our shareholders and investors,” said Adani Group’s head of legal, Jatin Jalundhwala, in another statement on Jan. 26.
“We are deeply disturbed by this intentional and reckless attempt by a foreign entity to mislead the investor community and the general public, undermine the goodwill and reputation of the Adani Group and its leaders, and sabotage the [Follow-on Public Offering] from Adani Enterprises.
“We are evaluating the relevant provisions under US and Indian laws for remedial and punitive action against Hindenburg Research,” he continued.
Hindenburg is doubling down.
“Regarding the company’s threats of legal action, to be clear, we would welcome it,” the short-seller reacted. “We fully stand by our report and believe any legal action taken against us would be meritless.”
“If Adani is serious, it should also file suit in the U.S. where we operate. We have a long list of documents we would demand in a legal discovery process.”
Market Rout in Adani Company Shares
In the meantime, Adani companies are seeing a stock-market rout. Over the past two trading sessions, the Adani empire has lost a total of $51 billion in market capitalization, according to Bloomberg News.
Adani Enterprises, the flagship of this empire, for example, lost nearly a fifth (more than 19%) of its value on Friday. Units like Adani Green Energy and Adani Total Gas plunged 20%, the daily limit allowed. Adani Power lost 5%. Adani Port’s share price dropped 13.8% and Adani Transmission fell 19.47%.
The sales of shares in Adani-related entities were widespread, with large trading volumes. The companies are listed on Mumbai.
Friday’s falls follow those of Wednesday, the first session after Hindenburg published its report. India’s stock market was closed on Thursday, Jan. 26.
This stock-market rout also affects Gautam Adani’s fortune. According to Bloomberg, this wealth should drop below $100 billion once the calculations are made by Jan. 27. It would be around $93 billion. At this level, Adani would have lost about $26 billion of his fortune since the publication of the Hindenburg report.
The billionaire has left his lieutenants to manage the crisis for the moment. He continues to take care of his profile on the world stage. Adani has published a photo of him with the Egyptian president on Jan. 26.
“An honour to have met HE President Sisi and his ministers on his visit to India and hear from him about his ambitious development plans for Egypt,” the billionaire wrote on Twitter. “Great possibilities in the Ports and Logistics, Energy and Digital sectors. We look forward to engaging.”
Unsurprisingly, most Twitter commentators were asking him to respond to the allegations of fraud made by Hindenburg.
“It’s good that you’re flying high and spending the wings but do clarify the allegations by #HindenburgReport,” commented one Twitter user.
Fitch Assesses Adani Group
Last August, the CreditSights subsidiary of Fitch Ratings warned that the Adani conglomerate was “deeply overleveraged” and may “in the worst-case scenario” spiral into a debt trap.
But two weeks later the credit-rating firm said it discovered that it had made “calculation errors” in two of Adani Group’s companies. It corrected its report and removed the words “deeply overleveraged.”
“CreditSights’ views have not changed from its original report and we still maintain that the group’s leverage is elevated,” CreditSights concluded.
Adani Group is one of the most valuable companies in India. The firm holds mines, ports and power plants. It owns a dozen commercial ports and is present in coal, electricity and renewable energy. It also has diversified into airports, data centers and defense.
The company also recently entered the cement sector by buying assets of cement manufacturer Holcim in India and is also looking to set up an aluminum factory.
Adani has grown the group by acquiring companies with debt.