Adani stocks tumble after US activist investor alleges ‘brazen’ fraud

A Hindenburg Research report says companies owned by billionaire Gautam Adani (left) have engaged in market manipulation and accounting fraud. PHOTO: AFP

MUMBAI – Shares in Adani Group companies fell after United States investor Hindenburg Research said it was shorting the conglomerate’s stocks and accused firms owned by Asia’s richest man of “brazen” market manipulation and accounting fraud.

Billionaire Gautam Adani’s flagship company Adani Enterprises and Adani Ports and Special Economic Zone (SEZ) dropped as much as 3.7 per cent and 7.3 per cent, respectively, on Wednesday despite relatively small free floats.

This was after Hindenburg, which specialises in activist short selling, made wide-ranging allegations of corporate malpractice following a two-year investigation into the tycoon’s companies. 

Cement-makers ACC and Ambuja Cements, Adani Group’s more widely traded recent acquisitions, plunged by as much as 7.2 per cent and 9.7 per cent, respectively.

Hindenburg’s report details a web of Adani family-controlled offshore shell entities in tax havens – including the Caribbean, Mauritius and the United Arab Emirates – that it claims were used to facilitate corruption, money laundering and taxpayer theft while siphoning money from the group’s listed companies.

The report is “a malicious combination of selective misinformation and stale, baseless and discredited allegations”, said Adani Group’s chief financial officer Jugeshinder Singh in a statement.

The report was released on the same day that a key share sale from Adani Enterprises, aimed at attracting a broader network of investors, was set to open for subscription. The timing “clearly betrays a brazen, mala fide intention to undermine” and damage the share sale plan, said Mr Singh.

The broadside from Hindenburg comes at a critical time for the ports-to-power tycoon. Mr Adani is seeking to raise his international profile and is aggressively branching into new businesses, including cement and media, in his power base of India, where he is seen to enjoy a close relationship with Prime Minister Narendra Modi.

The Adani empire’s expansion plans are closely aligned to the government’s development and economic goals.

Mr Adani rocketed up the Bloomberg Billionaires Index in 2022, past the likes of Bill Gates and Warren Buffett, and his fortune now totals US$118.9 billion (S$156.4 billion), making him the fourth-wealthiest person in the world.

A prominent research outfit, Hindenburg is best known for its critical reports on the electric vehicle space. It was instrumental in bringing down the founder of e-truck company Nikola Corp, which was accused by Hindenburg in 2020 of being built on “dozens of lies”. Nikola founder Trevor Milton eventually stepped down as chairman and was found guilty of securities fraud. More recent targets of Hindenburg’s include Clover Health and Lordstown Motors.

Hindenburg said it had taken a short position in Mr Adani’s companies through US-traded bonds and non-Indian-traded derivative instruments. “Even if you ignore the findings of our investigation and take the financials of Adani Group at face value, its seven key listed companies have 85 per cent downside purely on a fundamental basis owing to sky-high valuations,” Hindenburg said in the report.

Adani companies trade at price-to-earnings ratios many times those of peer companies both in India and around the globe, including companies in the Reliance empire of rival tycoon Mukesh Ambani – Mr Adani’s predecessor as Asia’s richest man. There are some signs that the bull run is slowing, with most Adani Group stocks starting the year with declines even before Hindenburg’s report.

Investors and analysts have also flagged concerns over the high levels of debt seen in the empire’s listed units. Gross debt at six Adani companies – Adani Enterprises, Adani Green Energy, Adani Ports and SEZ, Adani Power, Adani Total Gas and Adani Transmission – stood at 1.88 trillion rupees (S$30.3 billion) as at end-March 2022.

BLOOMBERG

Follow ST on LinkedIn and stay updated on the latest career news, insights and more.