<\/figure>\n\n\n\nMore brazenly, though, the debt leveraging of the Adani companies was not hidden at all. It was for all to see how Adani bought companies with debt, bloated stock prices with further debt as well as with returns of round-tripped over-invoiced monies, and then again increased debt by pledging the now highly priced shares to the same banks from which they took loans in the first place. This, in most cases, was the ubiquitous public sector giant, the State Bank of India, the Indian conman\u2019s favourite whipping boy.<\/p>\n\n\n\n
The Hindenburg report has provided a very interesting round-tripping sketch, borrowed from Trinamool Congress MP Mahua Moitra\u2019s presentation. <\/p>\n\n\n\n
The Satyam Computers Case<\/h2>\n\n\n\n The Satyam Computer Services scandal was India\u2019s largest corporate fraud until 2010. Adani, of course, has taken the cake in this. In that fraud, founder chairman Byrraju Ramalinga Raju and directors of the India-based outsourcing company had brazenly falsified the accounts, inflated the share price, and had siphoned off large sums from the company to invest in property. As, in late 2008, the Hyderabad property market collapsed, money trails led back to Satyam. In 2009 Raju confessed.<\/p>\n\n\n\n
While that was big, one thing was clearly missing for Raju: political patronage. Adani has made it clear that, politically, he was on rock solid ground.\u00a0<\/p>\n\n\n\n
The research report<\/h2>\n\n\n\n Before going into some details of the research report in which Adani has been asked 88 pointed questions, one needs to wrap one\u2019s head around the overall picture presented by the report in simple terms.<\/p>\n\n\n\n
While the Adani-led Adani Group has seven publicly listed companies and 578 subsidiaries, all companies are largely managed by his family members. As the report was being compiled, these companies commanded a market valuation of $200 billion. And to get a picture of how closely controlled are these companies by Adani and his family members (a bit extended too, sometimes), one just needs to note that Adani\u2019s net worth in 2018 was $20 billion. This had shot up to an astronomical $120 billion by 2022. Nobody has ever reached such valuation in such short a time. There had to be something more to it that meets the eye.<\/p>\n\n\n\n
Let us consider Adani Enterprises, the overall company, whose FPO was withdrawn within the dirty scent of the scam. As of December 22, 2022, Gautam S. Adani\/Shri Rajesh S. Adani (on behalf of S.B. Adani Family Trust) held 55.27% of its shares. Adani Tradeline Private Limited held 8.73%, etc. The total promoter shareholding was at 72.63%, including 8.63% of foreign promoters, which would generally be companies owned or controlled by Vinod Adani, according to the Hindenburg report.<\/p>\n\n\n\n
Total institutional holding is at 20.84%, of which LIC, bloated with monies and trust of the hardworking people of India, holds 4.23%. It is being asked why LIC invested in Adani, when everybody knew of its apparently fraudulent practices. Who forced the LIC into this shady investment deal?<\/p>\n\n\n\n
When Live Mint asked LIC on January 30 about its investment, LIC had said that, over the years, it invested Rs 30,127 crore in Adani group assets, and as of January 27, the absolute market value of its investment was Rs 56,142 crore. This value has collapsed spectacularly, as have LIC shares. This is public money, and if the mega life insurer suffers bad health, it will directly affect the individual policy holder who has spent decades, slowly saving up for a decent life after retirement.<\/p>\n\n\n\n
It was not that LIC had no inclination of this. Adani group companies have had very little investment from mutual funds, controlled by professional fund managers. And LIC fund managers would have been completely aware of this. Mutual fund holdings in Adani shares are at 1.19 % and they have been reducing exposure to Adani stocks over the last few months.<\/p>\n\n\n\n
The debt burden<\/h2>\n\n\n\n When the bloodbath started, the entire stock valuation of the companies shattered. Say, an Adani share was priced at Rs 100 before the crash, having been boosted to that level (from a face value of Rs 10) through the several methods mentioned earlier. When Adani pledges that stock to the banks, the bank would distribute the loan, assuming it had a Rs 100 asset in its grip. Say the loan through the pledge was Rs 70 at PLR. Now that the share price is reaching Rs 50, or less, how does the company service this?<\/p>\n\n\n\n
As is said in India these days, \u201cIf you owe the bank Rs 100, it\u2019s your problem. If you owe the bank Rs 100 core, it\u2019s the bank\u2019s problem.\u201d These are massive NPAs in the making.<\/p>\n\n\n\n
Adani rebuttal<\/h2>\n\n\n\n In its 413-page strong Adani rebuttal to the 88 questions asked by the New York-based \u201cshort-seller\u201d, the Adani Group raised questions on the motivation behind the report and said it is case of unethical short selling by a foreign entity by publishing a report to manipulate and depress the price of stock, and create a false market.<\/p>\n\n\n\n
It claimed that this was an attack on India (how the group arrived at this conclusion is not clear), but barely could scratch the surface of the allegations. Adani said it will go to court, which was welcomed by Hindenburg, saying that all details would come out in the open, officially, in the discovery process. It is unlikely that the Adani group will have the gall to challenge the small US company in a US court. That is a difficult turf and no amount of political backing will help.<\/p>\n\n\n\n
The Fitch report<\/h2>\n\n\n\n It is not only Hindenburg that has made such allegations against the Adani Group. In August 2022, American finance and insurance company Fitch Group had warned that the group had taken on too much debt and raised the possibility of a default \u201cin the worst-case scenario\u201d. However, the report also said the Adani Group draws \u201ccomfort\u201d from its strong relationships with banks and India\u2019s government. Indeed, the conglomerate has been described as being \u201ctoo big to fail\u201d for the Indian government.<\/p>\n\n\n\n
What foreign media feels<\/h2>\n\n\n\n Wall Street Journal columnist Megha Mandavia has noted that the Indian government\u2019s handling of the crisis will shape \u201cforeign investors\u2019 perception of the country\u2019s attractiveness\u201d. \u201cForeign investors, who hold a large chunk of the conglomerate\u2019s sizable debt, may be reluctant to keep financing it until they are confident that the regulator has thoroughly assessed Hindenburg\u2019s claims,\u201d she argued.<\/p>\n\n\n\n
Britain\u2019s Financial Times has described the crisis as a \u201cdefining test for India Inc\u201d. In its daily investment column, the newspaper said the relationship between Indian politicians and the business elite \u201cis worryingly close\u201d. However, it argued, \u201cIndia can dispel negative interpretations of such ties by investigating the Adani affair thoroughly and with extensive public disclosure.\u201d<\/p>\n\n\n\n
These are the challenges before the government today. The goodness of the ruling dispensation will depend on what it does with this scandal. <\/p>\n\n\n\n
\u2014The author writes on legal, economic and corporate issues, apart from social commentary. He is Executive Editor at India Legal<\/strong><\/p>\n\n\n\n<\/p>\n\n\n\n
About Hindenburg<\/h2>\n\n\n\n According to its website https:\/\/hindenburgresearch.com, this is a small firm founded by Nate Anderson, CFA, CAIA, and says it \u201cspecializes in forensic financial research. Our experience in the investment management industry spans decades, with a historical focus on equity, credit, and derivatives analysis.\u201d That would do away with the idea that they are the short-sellers. What they do is tie up with brokers who take short positions on firms which are being \u201cinvestigated\u201d by the firm and when disparaging details emerge from the accounting practices of the firm and the share prices tank, the short seller(s) profit on delivery.<\/p>\n\n\n\n
Hindenburg would be having a commission deal with the short sellers. Though this sounds pretty unethical, it is definitely not illegal. The site (there is no address) says: \u201cIn particular we often look for situations where companies may have any combination of:<\/p>\n\n\n\n
Accounting irregularities<\/li> Bad actors in management or key service provider roles<\/li> Undisclosed related-party transactions<\/li> Illegal\/unethical business or financial reporting practices<\/li> Undisclosed regulatory, product, or financial issues <\/li><\/ul>\n\n\n\nAnd more.<\/p>\n\n\n\n
Hindenburg\u2019s claim to fame was how in September 2020 \u201cWe released a report titled \u201cNikola: How to Parlay An Ocean of Lies Into a Partnership With the Largest Auto OEM in America\u201d that, with the help of whistleblowers and former employees, called out a vast array of alleged lies and deceptions by Nikola in the years leading up to its proposed partnership with General Motors. <\/p>\n\n\n\n
In 2022 Nikola founder Trevor Milton was convicted by a US jury of fraud in a case alleging he lied to investors about the electric and hydrogen fuel cell company\u2019s technology. That was the fatal blow. Now it\u2019s the turn of Gautam Adani.<\/p>\n","protected":false},"excerpt":{"rendered":"
The explosive crisis is a defining test for India Inc and corporate governance. The government can soften the national and international fallout only by investigating the Gautam Adani affair thoroughly and with extensive public disclosure.<\/p>\n","protected":false},"author":2,"featured_media":301051,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_jetpack_memberships_contains_paid_content":false,"jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false}}},"categories":[2,56744],"tags":[16602,123775,1861,926],"jetpack_publicize_connections":[],"jetpack_sharing_enabled":true,"jetpack_featured_media_url":"https:\/\/d2r2ijn7njrktv.cloudfront.net\/IL\/uploads\/2023\/02\/04171816\/Lead-Hindenburg-report-Sujit-min.jpg","_links":{"self":[{"href":"https:\/\/www.indialegallive.com\/wp-json\/wp\/v2\/posts\/301050"}],"collection":[{"href":"https:\/\/www.indialegallive.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.indialegallive.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.indialegallive.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.indialegallive.com\/wp-json\/wp\/v2\/comments?post=301050"}],"version-history":[{"count":0,"href":"https:\/\/www.indialegallive.com\/wp-json\/wp\/v2\/posts\/301050\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.indialegallive.com\/wp-json\/wp\/v2\/media\/301051"}],"wp:attachment":[{"href":"https:\/\/www.indialegallive.com\/wp-json\/wp\/v2\/media?parent=301050"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.indialegallive.com\/wp-json\/wp\/v2\/categories?post=301050"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.indialegallive.com\/wp-json\/wp\/v2\/tags?post=301050"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}