ALBAWABA — Shares prices of companies in India's Adani Group on Friday extended losses to over $50 billion days after corporate fraud allegations sucker punched the group.
United States-based Hindenburg Research, an investment research firm with a focus on activist short-selling, published its 100-page two-year investigation report into the group's business practices on Jan. 24, accusing it of “brazen stock manipulation and accounting fraud scheme over the course of decades”, using undisclosed related-party transactions and earnings manipulation to “maintain the appearance of financial health and solvency” of its listed business units.
“There is nothing alarming about Adani exposure and we don’t have any concerns as of now,” Dinesh Kumar Khara, chairman of the country’s largest lender State Bank of India, told Reuters.
In its report, Hindenburg said the group’s companies had “substantial debt”, putting the conglomerate on a “precarious financial footing” and whose “sky-high valuations” had pushed the share prices of its companies by as much as 85 percent beyond their actual value.
Adani's elder brother Vinod managed "a vast labyrinth of offshore shell entities" in tax havens including Mauritius, Cyprus and several Caribbean islands, the report claimed.
Hindenburg said it had taken up short positions in Adani Group companies, through its U.S.-traded bonds and non-Indian-traded derivative instruments, meaning it would benefit from a drop in their value.
The shares of the group’s flagship, Adani Enterprises, sank as much as 20 percent and other group companies saw similar losses on Friday, casting doubts on the success of the company’s record $2.45 billion secondary share sale with the issue subscribed at a meager 1 percent at the opening of bidding. The offer closes on Jan. 31.
Adani Group, the business empire of Asia's richest man Gautam Adani, lost a total of $51 billion in market value since Wednesday, taking into account its investments in ACC Limited and Ambuja Cements Ltd which also slide after the report.
“Obviously this is panic-selling,” JM Financials equity research chief Ashish Chaturmohta told Agence France-Presse, adding that traders were creating fresh short-sell positions to protect earlier bullish bets on Adani stocks.
According to Forbes' billionaire profile tracker, Adani, 60, was the world's third richest person but slide down the rankings to seventh after Hindenburg’s accusations.
“While the Hindenburg report focused mainly on equity valuations within the group, we are primarily concerned about the underlying credit profiles of group companies given underlying bank exposures.
“We think the underlying assets at the bond level are quite adequately leveraged while the promoter-level is an unknown and is something that can be mitigated only through an equity raise, such as the ongoing Adani Enterprises follow-on public offering,” American multinational financial services company, JPMorgan Chase & Co., told Reuters.
On Friday in a conference call with bondholders of Adani Ports & Special Economic Zone, Adnani Group disputed Hindenburg’s claims, branding the report “bogus” and telling investors the allegations of accounting fraud were “devoid of facts”, according to Bloomberg.
Legal chief Jatin Jalundhwala said Adani Group was exploring its punitive action against Hindenburg Research in U.S. and Indian courts for its “malicious combination of selective misinformation and stale, baseless and discredited allegations”.
Hindenburg responded by tweeting: “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.”
Hindenburg said that it stood fully by its report and believed any legal action would be “meritless.”
Mumbai-based market analyst Arun Kejriwal said Hindenburg was looking to capitalize on its short position in Adani and described the allegations as “100 percent unsubstantiated”.
“It is just a compilation of old news at a time when it hurts them the most,” Kejriwal said. “The more scandalous they make it, the more damage it causes.”
Shares in Adani business units which had soared by as much as 2,000 percent in the past three years, tumbled on mere allegations, setting the stage for an ongoing saga to find its way forward.
