Gautam Adani Was Briefly World’s Richest Man Only To Be Brought Down By An American Short-Seller
Who Is Gautam Adani And What Is Hindenburg Research? Gautam Adani Was Briefly World’s Richest Man Only To Be Brought Down By An American Short-Seller
Allegations of stock manipulation and accounting fraud from New York-based investor Hindenburg Research against Adani Group are piling pressure on the Indian conglomerate and its 60-year-old founder. Gautam Adani is one of Asia’s richest men and at one point last year was second only to Elon Musk in the world. Unlike Musk, Adani is relatively unknown outside his home country. Here’s some background on him and what’s going on.
1. Who Is Gautam Adani? What’s His Net Worth?
Adani was born to a small textile merchant family in 1962 in the western industrial state of Gujarat. He dropped out of university and began his career sorting diamonds for a firm in the financial hub of Mumbai. He later imported materials used in manufactured goods and by the mid-1990s was managing the Mundra Port, which he now owns. While his net worth took a beating in the days after Hindenburg’s report was published on Jan. 24, he was still one of the richest men in the world according to the Bloomberg Billionaires Index.
Adani Group today comprises half a dozen major companies with interests ranging from energy to transportation and infrastructure development. It’s India’s largest port operator and manages some of the country’s biggest airports. Adani Enterprises, the group’s listed trading house, reported $9.3 billion in sales in the year through March 31, 2022.
3. What Are Adani’s Companies?
In Addition To Adani Enterprises, Which Is Also In Coal Mining, There Are:
Adani Green Energy Ltd. (Renewable Power Generation)
Adani Transmission Ltd. (Power Transmission)
Adani Total Gas Ltd. (Gas Distribution)
Adani Power Ltd. (Coal-Fired Power Generation)
The Adani Group also runs a real estate business, a shadow banking firm named Adani Capital and an edible oil and food business via a venture with Singapore-based Wilmar International Ltd.
The tycoon is seen as closer to Prime Minister Narendra Modi, who also hails from Gujarat state, than any other Indian billionaire. Adani’s corporate strategy has run in parallel with Modi’s efforts to develop India’s $3.2 trillion economy.
When Modi promised to bring reliable electricity to more Indians, Adani doubled down on coal-fired power production.
The alignment extends to foreign affairs. In 2021, Adani began construction of a major port facility in Sri Lanka. Officials from both countries said the plan was encouraged by the Modi government, which wants to curb Chinese influence in the island nation.
Whether building expressways or upgrading data centers, Adani can be counted on to provide money, infrastructure, or expertise, whatever the policy priority.
5. What Are Hindenburg’s Main Allegations?
Hindenburg, founded by short-seller Nathan Anderson, issued a 100-page report accusing the Indian conglomerate of using a web of companies in tax havens to inflate revenue and stock prices, even as debt piled up. Among the allegations:
* It identified 38 Mauritius shell entities controlled by Adani’s brother, Vinod Adani, or his close associates plus entities controlled by him in other tax havens.
* The offshore shell network seems to be used for earnings manipulation.
* Adani Group has previously been the focus of four major government investigations relating to allegations of fraud.
* Adani Enterprises and Adani Total Gas appear to be audited by a tiny firm, with no current website, only four partners and 11 employees, and which has audited just one other listed firm.
* The auditor “hardly seems capable of complex audit work,” it said, when Adani Enterprises alone has 156 subsidiaries and many more joint ventures.
Hindenburg also said it had taken a short position — basically a bet that the stock price would go down — in Adani’s companies through US-traded bonds and non-Indian-traded derivatives.
The shares in fact plummeted, erasing tens of billions of dollars in market value from Adani’s flagship. A record $2.4 billion follow-on share sale was canceled after it was fully subscribed on the final day, with the company board saying that going ahead wouldn’t be “morally correct.”
6. How Did Adani Respond?
In a rebuttal published Jan. 29, Adani said that it had addressed some 65 of the 88 questions raised by Hindenburg in public disclosures. It described the short seller’s conduct as “nothing short of a calculated securities fraud under applicable law.” The group said it would “exercise our rights to pursue remedies to safeguard our stakeholders before all appropriate authorities.” Hindenburg then said Adani’s response ignored all its key allegations and was “obfuscated by nationalism.”
7. What Is Hindenburg Research?
Anderson’s firm — technically a research and trading outfit, not a hedge fund with outside investors — is less than five years old and wagers its own money in the markets. Even in Manhattan’s financial circles, Anderson is hardly a big name. The closely held firm specializes in forensic financial research, according to its website. It first attracted Wall Street’s attention in 2020 for raising serious questions about electric-vehicle makers Nikola Corp. and Lordstown Motors Corp.
Adani Rout Hits $68 Billion As Fight With Hindenburg Intensifies
* Most Adani Stocks Declined Again On Monday, Flagship Gained * The Conglomerate’s Dollar Bonds Also Extended A Plunge
Billionaire Gautam Adani’s 413-page attempt to restore confidence in his business empire is falling flat with investors, as stock-market losses deepen and key dollar bonds sink to fresh lows.
Shares of most Adani firms slumped on Monday despite the group’s lengthy weekend rebuttal to allegations from Hindenburg Research that the Indian conglomerate used a web of companies in tax havens to inflate revenue and stock prices even as debt piled up. The three-day selloff has now erased more than $68 billion of market value amid a share sale by Adani’s flagship that was meant to underline the tycoon’s ascension on the global stage.
While the Adani Group has portrayed Hindenburg’s allegations as baseless and an attack against India itself, the saga is reviving longstanding investor concerns about the conglomerate’s corporate governance. It also threatens to weaken broader confidence in India, until recently a top investment destination for Wall Street, and accelerate a nascent shift toward a reopening China.
“Not sure if Adani’s rebuttal is enough to assuage investor concerns. Just because things are disclosed and known does not make them right,” said Brian Freitas, an analyst at Smartkarma. “How does a group that big explain no analyst coverage and no mutual fund holdings?”
Hindenburg published a report last week accusing the Adani group of “brazen” market manipulation and accounting fraud. The wide-ranging allegations of purported corporate malpractice spoke of a web of Adani-family controlled offshore shell entities in tax havens, from the Caribbean, Mauritius and the United Arab Emirates.
Hindenburg said it had taken a short position in Adani’s companies through US-traded bonds and non-Indian-traded derivative instruments. Here’s some of their main allegations:
* Identified 38 Mauritius shell entities controlled by Adani’s brother, Vinod Adani, or his close associates plus entities controlled by him in other tax havens.
* The offshore shell network seems to be used for earnings manipulation.
* Adani Group has previously been the focus of four major government investigations relating to allegations of fraud.
* Adani Enterprises and Adani Total Gas Ltd. appear to be audited by a tiny firm, with no current website, only four partners and 11 employees, and which has audited just one other listed firm.
* The auditor “hardly seems capable of complex audit work” when Adani Enterprises alone has 156 subsidiaries and many more joint ventures.
In its rebuttal published Sunday, Adani said that some 65 of the 88 questions raised by Hindenburg have been addressed in the conglomerate’s public disclosures, describing the short seller’s conduct as “nothing short of a calculated securities fraud under applicable law.” The group reiterated it will “exercise our rights to pursue remedies to safeguard our stakeholders before all appropriate authorities.”
Hindenburg then said Adani’s rebuttal ignored all its key allegations and was “obfuscated by nationalism.” The conglomerate’s statement failed to specifically answer 62 of Hindenburg’s 88 questions, the short seller said Monday, and conflated the company’s “meteoric rise” and the wealth of Asia’s richest man “with the success of India itself.”
Adani’s stocks were some of the best performers last year not just in the local market, but also on the broader MSCI Asia Pacific Index.
The selloff that began last week broadly continued on Monday, with Adani Total Gas Ltd. and Adani Green Energy Ltd. down as much as 20%. The flagship Adani Enterprises traded volatile, briefly erasing an early gain of as much as 10% before closing up 4.8%.
Still, Adani Enterprises’ shares remain below the floor price set for the follow-on equity sale. The company is seeking to raise 200 billion rupees ($2.5 billion).
Overall subscription for the share offer by Adani Enterprises, which closes on Tuesday, was at just 2% as of 16:27 p.m. in Mumbai on Monday. Retail investors had bid for 4% of the shares on offer to them, while the company’s employees bid for 12% of the shares for their category. The non-institutional part that includes wealthy individuals had been taken up 1%. Institutional investors bid for 4,576 shares, a fraction of the 12.8 million on offer.
While investors in Indian public offerings typically wait until the last day of the sale to place bids, concerns have risen that Hindenburg’s report will hurt sentiment.
There will be no change to the pricing of the additional share sale and it will proceed as scheduled, Adani Group CFO Jugeshinder Singh told news channel CNBC TV 18 in an interview.
‘Turn For Worse’
Meanwhile, a decline in the dollar bonds of the Adani Group companies quickened on Monday. Adani Ports & Special Economic Zone Ltd.’s 2027 note dropped 5 cents, Bloomberg-compiled data show.
Several bonds issued by group companies, including the 2032 note of Adani Ports and Special Economic Zone Ltd., have dropped below the 70-cents-on-the-dollar mark typically considered distressed.
Hindenburg Research’s attack on the Adani Group has also sparked a flurry of bets in the options markets, with a wide divide between those behind the short seller and others predicting a rebound in the shares.
Open interest — a measure of outstanding positions in call and put options — surged as some investors sought protection against the wild swings in the group’s shares.
“The risk-reward for Indian markets has just taken a turn for the worse,” said Charu Chanana, a strategist at Saxo Capital Markets. “Foreign investor confidence has been dented and will take time to repair, so I would be rather cautious. India anyway started this year trading at a premium to other EMs, and the Adani saga has once again questioned whether that is justified.”
Adani In Crisis As Bonds Hit Distressed Levels, Stock Sale Axed
* Some Bonds Tumbled By The Most In Global Secondary Trading * Adani Companies Have Seen $92 Billion Erased From Market Value
Gautam Adani’s beleaguered empire is spiraling into crisis, as the fallout from a short-seller’s fraud allegations leads to a worsening meltdown in the indebted conglomerate’s securities.
Bonds of the Indian billionaire’s flagship firm plunged to distressed levels in US trading, and the company abruptly pulled a record domestic stock offering after the Adani group suffered a $92 billion market crash. Banks either want more collateral for loans, or are scrutinizing the value of the company’s debt to lend against.
The question now is what Adani will do to prevent the turmoil from getting out of control, especially after the setback with the stock offering, which would have been India’s largest and further raise his global profile. The risk is also that more financial institutions start to scrutinize their exposure to a business empire that sprawls from ports to green energy.
“The biggest risk is if Adani Group faces a severe deterioration in access to financing, particularly at its highly leveraged entities,” Leonard Law, a senior credit analyst at Lucror Analytics, wrote in a note. “This is as a liquidity crunch at any one of the entities may have a ripple effect on financing access for the wider group. That said, the group can likely continue to raise funds from onshore banks and bonds for now.”
Citigroup Inc.’s wealth arm has also joined Credit Suisse Group AG in stopping the acceptance of securities of Adani’s group of firms as collateral for margin loans as banks ramp up scrutiny of the Indian tycoon’s finances.
Hindenburg Research last week accused the Adani group of “brazen” market manipulation and accounting fraud, setting off an intense selloff in the stocks. Adani has repeatedly denied the allegations, called the report “bogus,” and threatened legal action.
Adani Enterprises’ decision to withdraw its follow-on share sale won’t have any impact on its existing operations and future plans, Adani said in a video speech Thursday. “The fundamentals of our company are strong. Our balance sheet is healthy and assets, robust. Once the market stabilizes, we will review our capital market strategy.”
Eyes are also on what the government of Prime Minister Narendra Modi, widely perceived to have close ties to Adani, might do to help ease group’s dire straits given the latter’s importance to the nation’s economy. Hindenburg’s report has also raised questions over India’s corporate governance, while Adani himself has called the report an attack on the country itself.
Matters escalated Wednesday with a record 28% plunge in Adani Enterprises Ltd. It subsequently abandoned a $2.4 billion follow-on share sale, even though it was fully subscribed with backing from prominent Indian and Gulf investors.
“It’s unusual for a secondary offering like this to be canceled,” said Ben Silverman, director of research at VerityData. “Pulling an offering at the last minute doesn’t inspire a lot of confidence right now.”
Bonds issued by Adani Ports & Special Economic Zone Ltd. and Adani Green Energy Ltd. dropped the most in global secondary trading on Wednesday. Some notes of the two companies yield more than 30%, way over the average investment grade yield of 4.96% and junk bond yield of 8.14%.
Adani Ports’ 3.375% bond due July 2024 tumbled more than 20 cents on the dollar to 69.75 cents in investment-grade secondary trading, according to Trace data. At least four other Adani Ports bonds hit distressed levels, falling to 69 cents or lower.
Adani Green Energy’s 4.375% bond due Sept. 2024 declined more than 12 cents on the dollar to 66.75 cents in high-yield secondary trading, according to Trace data.
Adani Enterprises had secured full subscription for India’s largest follow-on share sale on Tuesday, the final day for bids, amid a last-minute surge in interest by existing shareholders and institutional investors. The expected completion of the deal was seen as a victory for Adani.
Still, with the company stock closing Wednesday at 2,135.35 rupees, investors who had bought at the offer range of between 3,112 rupees to 3,276 rupees would sitting on immediate big losses.
“The problem now is that the dynamics are becoming a self-reinforcing negative feedback loop and investors are now just dumping the shares and asking questions later,” said Peter Garnry, head of equity strategy at Saxo Bank A/S.
How Gautam Adani Made (And Could Lose) A $147 Billion Fortune
Indian businessman built an empire by working closely with the Modi government; a U.S. short seller has put it at risk
AHMEDABAD, India—Gautam Adani is ubiquitous in this country.
His name is plastered on roadside billboards and on the airports and shipping docks he operates. His power plants light Mumbai office towers and irrigate rural fields, fueled by coal he imports from mines as far away as Australia. He recently expanded into defense and media.
So when U.S. short seller Hindenburg Research alleged last week that the Adani Group—the energy and infrastructure conglomerate he controls—was engaged in wide-ranging fraud, the fallout was widespread and severe. His companies’ stocks and bonds plunged, leaving investors with billions of dollars in losses and igniting a bitter fight that the company cast as an assault on the nation itself. On Wednesday, Mr. Adani’s flagship company, Adani Enterprises, canceled a stock sale of up to $2.5 billion.
The Adani Group denied the short seller’s allegations, describing the report as “a calculated attack on India, the independence, integrity and quality of Indian institutions, and the growth story and ambition of India.” Hindenburg shot back that Adani’s rebuttal stoked nationalist sentiment without adequately addressing the issues the firm had raised.
India’s rise as a global economic heavyweight has long buoyed Mr. Adani’s fortunes. As tens of millions of Indians joined the middle class over the past decade, Adani companies worked hand-in-glove with the government of Prime Minister Narendra Modi to modernize the country’s infrastructure, from airports to shipping docks, while importing enough fuel to keep the country’s economy of 1.4 billion people on an upward trajectory.
Now, Mr. Adani’s symbiosis with the Indian economy is being tested. The 104-page report released by Hindenburg Research alleged that Adani Group had engaged in fraud, including stock-market manipulation by using a network of overseas shell companies and questionable accounting and business practices. The Adani Group’s 413-page rebuttal called the short seller’s report “nothing but a lie.”
Mr. Adani’s fortune is taking a hit. In September 2022, Mr. Adani, 60 years old, briefly displaced Amazon.com Inc. founder Jeff Bezos as the world’s second-richest man, with a net worth of $147 billion, according to the Bloomberg Billionaires Index.
As of Wednesday, the seven listed companies bearing Mr. Adani’s name had lost about $85 billion in market capitalization since the release of the report. They are now worth $132.3 billion, according to FactSet data. Mr. Adani slid to 10th in the Bloomberg index, with a net worth of $84.5 billion as of Wednesday.
Mr. Adani made no mention of the Hindenburg report on Tuesday when he spoke publicly for the first time since its publication.
At a ceremony marking the Adani Group’s acquisition of the Port of Haifa in Israel, he cited the conglomerate’s strong ties to the Israeli economy.
Hindenburg’s allegations have shaken what many Indians call the Gujarat model of economic growth—a reference to the home state of both Messrs. Adani and Modi. The approach has involved using large government subsidies to fund infrastructure construction by private firms such as Mr. Adani’s.
The opposition Congress party has used the Hindenburg report to cast the Adani Group as an oligarch enabled by the Modi government.
“It says a lot about what corporate India is like,” said Hemindra Hazari, a Mumbai-based analyst who specializes in the Indian capital markets. Investors, he said, “are clearly very shaken up.”
A spokesman for the Modi government didn’t respond to requests for comment. The Adani Group referred a reporter to Mr. Adani’s past TV interviews, in which he was asked about his relationship with Mr. Modi.
“Most of the people like Mr. Modi, and they don’t find any problems in Adani’s development model,” Mr. Adani said in a Jan. 7 interview on India TV. He said some of the biggest breaks of his career came when the current opposition was in power.
India’s gross domestic product has risen from $1.82 trillion in 2011 to $3.18 trillion in 2021, according to World Bank data, making it one of the fastest-growing economies in the world over the past decade.
It is on track to become the world’s third-largest economy by 2027, and to have the third-largest stock market by 2030, according to Morgan Stanley, which says India’s GDP could more than double to $7.5 trillion by 2031.
Mr. Adani is involved in the Modi government’s plans to pivot the economy from fossil fuels to cleaner sources of energy such as wind and solar power.
He has vowed to build three factories to make solar modules, wind turbines and hydrogen electrolyzers, part of his plan to invest $70 billion in cleaner technologies over the next decade. He is developing a vast solar farm in India’s northwestern desert.
Mr. Adani’s empire began in Gujarat, a state on India’s northwest coast, bordering Pakistan. The youngest of five children, he grew up in the city of Ahmedabad, where his family was active in commodity trading.
He dropped out of school as a teenager and moved to Mumbai to work in the city’s diamond markets. He has said that abandoning his studies was unfortunate, but that the diamond trade taught him how to cut a deal.
“Education makes a person knowledgeable,” he said in the India TV interview. “I chose another path: hard work and experience.”
Mr. Adani returned to Ahmedabad in the early 1980s to work with his older brother, Mahasukh, who had acquired a plastics maker. He worked there as an importer, procuring raw materials for the firm’s factories.
The family later founded Adani Exports, sending goods such as toothpaste and shoe polish to global markets.
In the early 1990s, India fell into an economic crisis fueled in part by the economy’s reliance on imports. The government secured an emergency loan from the International Monetary Fund and embarked on a sweeping privatization drive.
Adani Exports began buying land at Mundra Port, which was owned by the state of Gujarat. Mundra’s unusually deep waters made it ideal for docking massive ships, and its position along the Arabian Sea made it an effective gateway for Asian goods to travel west.
Mr. Adani said in the TV interview he paid one rupee a square foot, the equivalent of just over 1 cent, for land that was costly to develop because it was underwater at high tide. “The cost of the reclamation is far bigger than the cost of the land,” he said.
Mr. Adani later proposed forming a joint venture with the state of Gujarat, which still owned land in the area, to further develop the port. Gujarat’s government approved the venture.
In 2001, after climbing the ranks of the Hindu nationalist Bharatiya Janata Party, Mr. Modi was appointed chief minister of Gujarat’s government. He helped its economy grow by providing incentives to attract businesses such as auto manufacturers, upgrading the electricity supply and improving irrigation for farmers.
Under Mr. Modi, the Gujarat government sold the state’s stake in the port joint venture to Adani Exports for two billion rupees, about $24 million at today’s exchange rate, according to a 2014 report by the federal government auditor.
“The development of Mundra Port which was envisaged as a joint sector port turned out to be a private sector port for which competitive bidding was not followed,” the report said.
Mr. Adani built a rail line to the port, making it the first in India connected to the national rail system. That allowed Mr. Adani to turbocharge the movement of goods through Mundra. The central government designated the port a special economic zone, providing another incentive to do business there.
India lacked abundant supplies of fossil fuels, so Mr. Adani began importing coal from Indonesia and Australia. He built a giant conveyor belt in Mundra to carry coal from the dock toward a nearby Adani power plant. Electricity generated at the plant moved over Adani transmission lines to cities and towns hundreds of miles away.
“I proudly say that we had a very good experience with the Modi government,” Mr. Adani said in the recent TV interview, referring to Mr. Modi’s Gujarat administration.
Mundra became India’s largest private port, which allowed Mr. Modi to brandish his pro-business credentials as he prepared to run for prime minister. A Hindu nationalist, Mr. Modi tapped into the frustrations of a generation of Indians who had climbed out of poverty but didn’t reach the middle class because of slowing growth and a lack of employment.
After Mr. Modi won, his government sought to further accelerate economic growth. That included a plan to privatize the operation of six airports. Companies in the bidding weren’t required to have any experience in building or operating airports. Mr. Adani won all six contracts, making his company India’s largest airport operator.
As Mr. Adani’s businesses grew, he spun them off into separately listed companies, including Adani Ports and Special Economic Zone, Adani Total Gas and Adani Transmission.
Adani Exports changed its name to Adani Enterprises, which the company now considers an incubator of new business lines. In November, company executives said Adani Airports and Adani Roads are in its “incubation pipeline.”
Adani Group’s expansion into new businesses such as data centers, copper refining and hydrogen drew it into capital-intensive sectors, where analysts say its companies have limited experience. Much of that expansion was funded by debt. Analysts have said many projects aren’t expected to turn a profit for a few years.
Debt-research firm CreditSights published a report in August describing Adani Group as “deeply overleveraged.” Adani Green Energy had a debt-to-equity ratio of 2,023% at the end of the fiscal year ended March 31, 2022, the report said, while Adani Transmission’s was 272%.
The report warned that if one of the conglomerate’s companies became financially distressed, it could negatively affect the stock prices or valuations of others.
Adani Group said in September the debt ratios of its companies “continue to be healthy and are in line with industry benchmarks,” adding that the companies have consistently reduced their debt loads.
In November, Adani Enterprises announced plans for a large stock sale, aiming to raise as much as $2.5 billion. It said some of the funds would be used to repay debt and fund capital expenditures for green-energy projects, expressway construction and airport improvements.
Three days before the public offering began last Friday, the Hindenburg report was released, sending shares of Adani companies plummeting.
In the report, the New York-based short seller alleged that Adani has manipulated the price of its shares by using a network of offshore shell companies to purchase shares across its companies. The firm said Adani Group stocks were overvalued and its debt levels too high.
In its lengthy rebuttal, Adani Group said the report was full of unsubstantiated allegations that created a misleading narrative. Over the past five years, the firm said, the conglomerate has lowered its ratio of net debt to earnings before interest, taxes, depreciation and amortization.
On Tuesday, Adani Enterprises had lined up enough investor bids to complete the stock offering, including those from state-owned entities Life Insurance Corp. of India and SBI Life Insurance Co. Ltd.
Late on Wednesday, the day the company was meant to price the deal, it instead said that it would cancel the $2.5 billion share sale.
“Given these extraordinary circumstances, the company’s board felt that going ahead with the issue would not be morally correct,” Mr. Adani said in a company news release.