It was on January 24, 2023, that Hindenburg Research, a tiny research firm in the US, published its scathing report against the Adani Group. It claimed that Gautam Adani, the “world’s 3rd richest man, is pulling the largest con in corporate history.”
The effect?
As you can imagine, it was almost instantaneous.
The next trading day saw the shares of Adani Group fall by 28%! In the span of just one week, Gautam Adani lost $34 billion from his net worth!
What is the story? Keep reading to find out.
The Adani-Hindenburg Scoop Explained
Stage 1: Hindenburg releases its findings
The Indian markets awoke to find the Adani Group stocks down in the dumps. Hindenburg had apparently proved Adani’s financial scam. The stock market has always worked on the run first — listen later principle, and this time was no different.
Adani didn’t get a chance to defend himself. Oh no, investors caught a whiff of fraud and started to sell in a frenzy. This set off a chain reaction and most Adani Group stocks hit their lower circuit.
Now, you don’t have to go through the entire report to know what allegations Hindenburg placed against Gautam Adani. We’ve summarised the main points below.
- Share price manipulation — Vinod Adani, brother to Gautam Adani has been involved in certain transactions related to holdings of the Adani Group companies.
- Excessive pledging and leveraging — The Adani Group companies have huge debt burden and they have taken loans by pledging the company shares as collateral. The capital structure is very unstable.
- Financial fraud — Adicorp, a company associated with the Adani Group has been used to channel funds from other group companies to Adani Power.
- Accounting fraud — The Adani Group has seen frequent changes in the higher level employees. Adani Enterprises has had 5 different CFOs in the last 8 years. This is red flag and generally indicative of accounting fraud.
Stage 2: Adani rushes to have the final say
Gautam Adani was not one to go down quietly. He responded to these allegations with a 400 page document of his own. Each point was carefully defended and justified.
The Adani Group delivered a few punches of their own. They claimed that Hindenburg had published the report with malicious intent. They revealed the fact that Hindenburg had taken numerous short positions against the Adani Group stocks before publishing the report.
Now, you might be wondering why this was such a big deal. I mean, nobody traverses to as great heights as Gautam Adani has without running afoul with journalists and analysts. With high visibility comes high risk.
What was it about the Hindenburg report that became such a huge deal?
Well, it was partly due to the fact that the Hindenburg report did not feel like an empty set of accusations. Valid questions have been brought up and some concerns are justified.
It is also due to the timing.
The release of the Hindenburg report directly coincided with the launch of the Rs 20,000 crore Adani Group FPO on January 27. Considering the sharp correction in Adani Group stocks, anyone holding short positions would have made a huge profit. Hindenburg must have, as well.
Stage 3: The Adani FPO opens to investor panic
Ironically, the proceeds from this FPO had been earmarked to service some of the debt burden. Sadly, it was just a case of being at the wrong place in the wrong time.
By the time the FPO opened for subscription, retail investors had already started panicking. The Adani Group stocks continued their free fall and the FPO only saw 1% subscription on its opening day.
Even though retail investors were spooked, institutional buyers swooped in to save the day. IHC (International Holding Company) from Abu Dhabi invested $400 million. By the time of closing, the FPO was fully subscribed.
All’s well that ends well.
Except it wasn’t the end.
In an unprecedented move, on February 1, Gautam Adani called off the FPO! He cited ethical reasons and said it wasn’t right to take money from investors while this shroud of allegations was still hanging over his company. He returned the money back to the investors.
“For me, the interest of my investors is paramount and everything is secondary. Hence to insulate the investors from potential losses we have withdrawn the FPO.”
The Road Ahead
The extent of the damage caused by the Hindenburg report is still not clear. But one thing is for certain — the Adani Group is so big that it will require a veritable force of nature to demolish.
We still don’t know whether the allegations are justified or not. However, if the Adani Group does fall, it will bring the markets down with it.
