Hindenburg vs. Adani: Claim and Counterclaim

Gautam Adani, one of the richest men in the world, has been under scrutiny since short seller Hindenburg Research accused his conglomerate of stock price manipulation and accounting fraud.

Hindenburg says the report released last week is the result of a two-year investigation. The Adani Group has denied the allegations, calling the report “a malicious combination of selective misinformation and outdated, unsubstantiated and discredited allegations”.

Financial Times details Hindenburg’s allegations and the Conglomerate response.

The role of Vinod Adani

Part of Hindenburg’s account hinges on the role allegedly played by Gautam Adani’s older brother Vinod Adani through a network of offshore companies he claims to control that are based in Mauritius. Mauritius has long been a preferred jurisdiction used by wealthy Indian elites to invest or park cash abroad. Vinod Adani could not be reached by the Financial Times for comment.

Hindenburg’s accusation: Vinod Adani controls a network of 38 Mauritius-based shell companies that have invested billions of dollars in public and private Adani companies in India. Hindenburg alleges these companies are involved in stock parking — the practice of selling stock to an intermediary to avoid disclosure or ownership requirements — as well as stock price manipulation and money laundering.

Response from Adani Group: “Vinod Adani does not hold a senior position in any of Adani’s listed companies or their subsidiaries and plays no role in their day-to-day affairs. Therefore, these questions have no relevance to the companies in the Adani portfolio and we are unable to comment on your claims regarding Mr. Vinod Adani’s dealings and transactions.”

Regarding allegations that there was evidence of illegal activity, the Adani group said: “[The allegations in question are] a selective regurgitation of data from the financial statements of Adani companies to paint a biased picture. These disclosures have already been approved by third parties qualified and competent to review them (and not by an unknown foreign short seller) and are in accordance with applicable accounting standards and law.”

disguise property

Hindenburg claims the Adani empire used the Mauritius funds to disguise the true extent of the family’s ownership of the Mumbai-listed Adani companies and circumvent rules governing how many shares insiders can own.

Hindenburg’s accusation: Some of these Mauritius offshore companies hide their ultimate ownership through nominated directors and hold shares almost exclusively in Adani companies. According to the report, one such company is London-based Elara, a firm it claims holds $3 billion worth of Adani stock, with one of its funds holding 99 percent of its assets in Adani. Elara did not respond to a request for comment.

Hindenburg claims another such fund is New Leaina Investments, which held $420 million worth of shares in Adani Green Energy through June-September 2021, according to the report. It is operated by Amicorp, an incorporation services company that has incorporated 17 Vinod-affiliated offshore shells and three Mauritius-based offshore shareholders of Adani shares, the report said. Amicorp did not respond to a request for comment.

Response from Adani Group: “We have duly disclosed all transactions entered into with companies that qualify as ‘related parties’ under Indian law and accounting standards. In addition, these were carried out at arm’s length conditions in accordance with the applicable laws. In addition, these are also disclosed by us, are publicly available to all regulators and our stakeholders, and have been properly verified and audited by independent third parties who are competent and have the necessary expertise.”

Manipulation of stock prices

Adani Group shares, listed in Mumbai, have risen sharply in recent years, with Adani Enterprises shares up more than 1,300 percent since the end of 2019, even after the recent sell-off. One of the short seller’s key allegations is that the Adani Group has manipulated the share prices of its listed companies through the use of offshore entities.

Hindenburg’s accusation: Hindenburg claims that “up to 30% to 47%” of the so-called annual supply volume, a measure that refers to shares bought on a given day and held until the market close, in several Adani company stocks “offshore suspicion.” “applies to Stock Parking Entities” and claims that this indicates that these companies may have been subjected to manipulative trading practices.

Response from Adani Group: “Each of the companies referenced in the above queries is a public shareholder of the listed companies in the Adani portfolio. Any suggestion that they are in any way affiliated with the organizers is false. A publicly traded company has no control over who buys/sells/owns the publicly traded shares or how much volume is traded, or the source of funds for these public shareholders, nor is it required by law to have such information for its public shareholders of India. As such, we cannot comment on the trading pattern or behavior of public shareholders.”

Hide balance sheet burdens

Analysts have previously raised concerns about whether Adani Group’s rapid, debt-fueled expansion is sustainable. The short seller claims that these offshore entities are being used to strengthen the balance sheets of the Adani Group’s listed companies to address concerns about their financial health.

Hindenburg’s accusation: Hindenburg alleges that offshore companies in Mauritius are used to funnel money to listed Adani companies through private onshore Adani companies and that these funds make the listed companies appear more creditworthy.

Response from Adani Group: “The above transactions . . . are not “Related Party Transactions” under Indian law or accounting standards. Consequently, we are neither aware nor need to be aware of their “money source”. All of the above transactions between the publicly traded Adani entities and the “private Adani entities”. . . are related party transactions conducted on an arm’s length basis and in accordance with applicable Indian laws and standards and also fully disclosed as related party transactions.”

Lax financial controls

Hindenburg supplemented the allegations of fraud and stock price manipulation with allegations that the Adani Group’s accounting and auditing standards were lax.

Hindenburg’s accusation: Hindenburg says “virtually nonexistent financial controls” at Adani Group were made possible by a high turnover of chief financial officers, with five resigning in eight years at Adani Enterprises. The short seller also alleges that two of the Adani Group’s listed companies, Adani Enterprises and Adani Total Gas, employ an auditor where the partners were only 24 and 23 years old when they began working on the audits.

Response from Adani Group: “The truth is that some of the CFOs that Hindenburg claims left are actually still part of the organization in various other capacities, including taking on larger or more important roles as part of our growth stories.”

Regarding the suitability of its auditors, Adani Group said: “All of these auditors that we engage have been duly certified and qualified by the relevant statutory bodies responsible for setting these benchmarks. All of our auditors have been appointed in accordance with applicable law.”