Readers may be familiar with the fall in the Adani group’s share prices last week. Indian investors were reacting to the findings from Hindenburg, an American investment firm which released an extremely detailed and damning report on the group’s practices. Hindenburg has taken a short position on Adani shares, meaning that it stands to make money if the price falls. Therefore it has, as Adani points out, a vested interest in bringing down the price. On the other hand, Hindenburg also has a genuine stake in what it has done and is putting its money where its mouth is.
Now for some reason, Indian mutual funds have avoided investing in Adani for the most part. However, the government owned Life Insurance Corporation of India has about `75,000 crore or more of taxpayer money invested in Adani. It is important therefore for Indians to know what the allegations against Adani are and am setting down here what the big issues are. The primary one is that foreign (‘offshore’) companies, which are disguised group companies, hold most of the non-promoter shares of Adani firms. If this is proven to be the case, it would mean the delisting of these companies by the Securities and Exchange Board of India, or SEBI. If promoters hold most of the shares in their company, they can manipulate the price by tightly regulating supply. Can we see evidence of this happening?
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A Bloomberg piece last year reported that the Adani group’s combined value was $255 billion “even when the combined annual net income of its seven publicly traded firms is less than $2 billion” and that “shares of Adani Green Energy Ltd. have jumped 4,500% over the past three years.” The wealth of Adani, who till recently was the world’s second richest individual, is from the valuation of these companies and not from the profit they make.
Adani Enterprises had revenue of `15,500 crore in 2019, `16,200 crore in 2020, `13,358 crore in 2021 and then `26,800 crore in 2022. Net profit in 2020 was `698 crore, falling to 368 crore in 2021 and returning to `720 crore in 2022. As a column in the Business Standard points out “these are not the financials that one would expect from companies valued at 300 and even 600 times earnings — stratospheric multiples that one might understand for small start-ups with exponential growth potential, not for companies in capital-intensive infrastructure businesses.”
The companies abroad Hindenburg refers to appear to be set up purely to hold Adani group shares. For example, the report talks of “Elara, an offshore fund with almost $3 billion in concentrated holdings of Adani shares, including a fund that is 99% concentrated in shares of Adani.”
Parliament has been told that neither the funds nor Adani firms were being investigated by the Enforcement Directorate, which is the agency that looks at money laundering. The government said in 2021 that SEBI was looking at some “compliance” issues at Adani and that the Directorate of Revenue Intelligence was “investigating certain entities” of the Adani group. However nothing has come of this so far. Even when Bloomberg News reported it couldn’t find contact details for Markus Beat Dangel, Anna Luzia Von Senger Burger, and Alastair Guggenbuchi-Even and Yonca Even Guggenbuehl, the names the government gave in Parliament as persons responsible for the funds, there was no response. Contrast this to the speed with which the government raids and freezes accounts and arrests its opponents and dissenters, using the ED.
Some of the other things that Hindenburg has found are quite concerning from the corporate governance point of view. For instance Adani Enterprises, the listed company which recently put up further shares for sale worth `20,000 crore has an independent auditor called Shah Dhandharia which had four partners and only 11 employees, Hindenburg said. The same firm also audits Adani Total Gas.
Another thing to know is that these accusations have been made before, by reputable news agencies, but this has not resulted in government action. The Financial Times in November 2020, ran a report headlined “Modi’s Rockefeller: Gautam Adani and the concentration of power in India”. It said that rules were bent to allow Adani, who had no experience in the sector, to take all six airports being privatised in 2018. “Overnight Mr Adani became one of the country’s biggest private airport operators. He is also its largest private ports operator and thermal coal power producer. He commands a growing share of India’s power transmission and gas distribution markets.”
So far the government has been silent on the charges being levelled, even after the stock price rout. Perhaps it is hoping for the share price to settle so that the matter goes away. That might happen, and we should not be surprised if nothing more comes of this, given that nothing has come of it in the past either. But very important and crucial questions about this government, the nature of the economic plan it has centred around “national champions” like Adani, on crony capitalism and rule of law have been raised. They have not been fully answered.
After Adani hinted at filing a case against Hindenburg, the company invited the lawsuit, asking Adani to file it in America, where it would ask for documents to be produced. One hopes that this case is filed so that things become clear.
