The Adani-Hindenburg saga is a conflict between Adani Group, a large Indian conglomerate, and Hindenburg Research, a research firm, and short seller. On January 25th, Hindenburg released a report alleging that the Adani Group had engaged in stock manipulation and accounting fraud over the years. Hindenburg’s report caused a significant decline in the market value of Adani Group, leading to a loss of over 50 billion USD in just two trading sessions. The chairman of Adani Group, Gautam Adani, also saw a decline in his net worth, losing over 20 billion USD, or approximately one-fifth of his total fortune causing a drop in his ranking on the world billionaire index.
Hindenburg Research is a short-selling company that bets against a company’s stock by borrowing shares, selling them, and buying them back when the stock price drops to make a profit. The company releases detailed reports outlining its reasons for shorting a stock. In the past, Hindenburg has targeted companies like Nikola and Eros International, with their reports leading to significant stock price drops. Their recent target is Adani Group, and they have released a report alleging corporate fraud and stock market manipulation.
The Adani Group has responded to the allegations made against it in a report by Hindenburg Research by saying that the accusations are a “calculated attack on India, its institutions, and the India growth story”. The group released a 413-page response to the 106-page Hindenburg report, refuting the allegations of “brazen stock manipulation and accounting fraud”. Adani argues that the report is flawed and does not make substantive allegations against the company, and views it as an attack on India’s growth story by vested interests.
The Hindenburg Research report claims that several associates of Gautam Adani have had past legal issues but currently serve on the board. They provide specific examples to support their argument, with the most prominent being an investigation by the Department of Revenue Intelligence (DRI) that implicated Samir Vora, Gautam Adani’s brother-in-law, in a diamond trading scam.
Adani Group, however, has dismissed these allegations by stating that the DRI order was set aside by a higher authority (CESTAT) and that a review petition was subsequently dismissed by the Supreme Court of India. The group also notes that other allegations outlined by Hindenburg have been similarly dismissed by various legal authorities and courts in India.
Hindenburg Research has made serious allegations against Vinod Adani, claiming that he has used offshore entities connected to him to engage in transactions with Adani companies, thereby artificially inflating their prices and boosting their financial health. Hindenburg believes that these entities are shell companies with no meaningful operations and that they were set up for the purpose of committing corporate fraud.
Adani has responded to the allegations made by Hindenburg Research, stating that 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. Therefore, the questions raised by Hindenburg have no relevance to Adani. Adani also claims that any transactions made with related parties have been properly disclosed as required by Indian law. Adani argues that as Vinod Adani is not a related party, they are not obligated to publicly disclose any dealings with him.
The Hindenburg Research alleges that the Adani group companies lent $87 million to AdiCorp Enterprises, an entity allegedly owned by a friend of the Adani. Additionally, AdiCorp reportedly immediately transferred 98% of those loans to Adani Power, leading Hindenburg to conclude that AdiCorp was used as a means to route funds from various Adani Group companies to Adani Power.
Adani’s response to the allegations is that AdiCorp is not a related party and therefore there is no obligation to disclose details to shareholders. They did not provide an explanation for why the loan was extended.
The Hindenburg report is questioning the legitimacy of certain financial transactions made by Adani Infra, a private company. The transactions in question include a $200 million loan from a “silver merchant” and a $600 million loan from a Mauritius-based entity, both of which are linked to the Adani Group. Hindenburg is asking for clarification on the source of funds and suggesting that these entities may have been used to transfer money between different companies within the Adani Group.
Adani Group has responded to the questions raised by Hindenburg regarding the transactions in question and stated that they are not related-party transactions. The group has not offered further clarification on the source of funds for these transactions.
The Hindenburg Research report alleges that the Adani Group has engaged in a pattern of moving funds in and out of listed companies in a manner that negatively impacted shareholder wealth. One specific example they provide is a series of payments made by listed Adani companies to private contractor PMC, which totaled $783 million over a 12-year period. Hindenburg claims that PMC was merely a front company for the Adani Group and cites charges made by the Department of Revenue Intelligence as support for this allegation.
The Adani Group has responded to the allegations made by Hindenburg Research by pointing to a ruling by higher adjudicating authorities who found that the two companies, Adani and PMC, are independent entities. Based on this ruling, the Adani Group dismisses the allegations made by Hindenburg Research in their report.
Hindenburg Research has expressed concerns about Adani’s corporate structure, which they believe is intentionally convoluted to hide any unethical or illegal dealings. According to Hindenburg, Adani has 7 key listed entities, each of which has multiple subsidiaries, creating a complex web of companies. This complexity makes it difficult to track the dealings of the company and potentially hide any shady business practices.
Hindenburg also notes that Adani’s companies have experienced a high turnover in key financial positions, particularly the Chief Financial Officer (CFO) role. For instance, Adani Enterprises has had 5 different CFOs in the past 8 years, which Hindenburg believes is a concerning trend.
Additionally, Hindenburg is concerned about the fact that despite Adani’s complexity, the company is audited by a small firm, Shah Dhandharia, with only 4 partners and 11 employees. This raises questions about the ability of such a small firm to thoroughly and effectively audit a company as large and complex as Adani.
Adani disputes the allegations made by Hindenburg Research and argues that the complexity of its corporate structure is a result of the nature of its business as an infrastructure company. They explain that new infrastructure projects are housed in separate companies to protect the group’s downside and comply with regulatory requirements. Therefore, having a large number of subsidiaries is a natural result of dealing with multiple projects over time.
Adani also explains that the high turnover of CFOs is not a sign of instability, but rather a result of the executives moving on to larger roles within the Adani group. They provide examples to support this argument. Regarding the size of the auditing firm, Adani notes that several of their entities are audited by major accounting firms such as EY, PwC, Deloitte, and KPMG.
Research firm Hindenburg has raised questions about funds based in Mauritius that have invested nearly $8 billion in Adani group companies. Hindenburg alleges that these funds almost exclusively hold shares in listed entities of the Adani Group and that the directors of these funds are loosely connected to Adani group companies. The CEO of one of these funds served as a director in companies alongside a diamond merchant whose son is married to Vinod Adani’s daughter.
Hindenburg asks whether these funds are acting independently or at the behest of the Adani group’s promoters, and whether they are breaching SEBI rules on the amount of shares promoters (and their group) can hold in publicly listed companies. They also ask why these funds are holding Adani shares almost exclusively and where they obtained the funds for this investment.
Adani has responded by stating that these are all independent shareholders and that any allegations suggesting a connection to Adani group promoters are incorrect. They refuse to provide further comment, arguing that they cannot have any information about public shareholders.