Less than two weeks ago, Gautam Adani was the fourth richest person in the world. With a personal fortune estimated at US$ 120 billion, the self-taught Indian industrialist was richer than Bill Gates or Warren Buffet.
Then Hindenburg Research, an American dealer operating “short” with bets against Adani’s companies, accused him of pulling off “the biggest scam in corporate history.”
Adani’s companies have lost $110 billion in value since then, and his own fortune has halved to just over $61 billion as investors withdraw their support.
While the Adani Group has condemned the report as “baseless” and “malicious”, investor doubts about its claims persist and the fallout is growing.
Adani’s business partners and creditors are clarifying their ties to the conglomerate, while India’s federal government is launching an investigation into his business after protests from opposition lawmakers.
Who is Gautam Adani?
Gautam Adani is a 60-year-old tycoon who founded the Adani Group more than 30 years ago.
After dropping out of college, he built a vast business empire spanning infrastructure, logistics, energy production and mining. This success has earned him comparisons to John D. Rockefeller and Cornelius Vanderbilt, who created vast monopolies during America’s Gilded Age in the 19th century.
He was Asia’s richest man, and last September he briefly surpassed Jeff Bezos to become the world’s second-richest person. He is also seen as a close ally of India’s Prime Minister Narendra Modi.
What are the charges against him?
Hindenburg Research surprised investors in late January when it published a report accusing Adani and his companies of widespread fraud and “blatant stock manipulation” that it claimed had taken place over decades.
The company said it had taken a short position on Adani Group companies, meaning it would benefit from a drop in its value.
Hindenburg threw 88 questions at Adani that cast doubt on his conglomerate’s financial health. Requests ranged from details about the group’s offshore entities to why it has “such a complicated and interconnected corporate structure”.
Adani Group said it is considering legal action in response to the claims.
He accused Hindenburg of launching “a calculated attack on India” and said the investment firm was only interested in its own financial gain. But analysts say the Adani Group has not convincingly responded to the issues raised by the report.
What do investors think?
Investors, spooked by the claims, are fleeing, not wanting to get caught on the wrong end of a trade. Shares in Adani Enterprises, Adani’s flagship company, have plunged nearly 55% since Hindenburg’s report was published on Jan. 24.
As a result, the company is now struggling to raise new funds. On Wednesday, Adani Enterprises abruptly pulled out of a $2.5 billion deal to sell shares just 24 hours after it closed.
Shares in most Adani Group companies fell again on Friday. Indian stock exchanges halted trading in five Adani-listed companies after their shares fell through daily limits set at 5% and 10%.
Meanwhile, TotalEnergies, a major business partner, said Adani had agreed to allow one of the “big four” accounting firms to perform a “general audit”. There was no confirmation from Adani.
The French energy giant described its $3.1 billion exposure to Adani through joint investments in India as “limited”. He also said that these partnerships were “carried out in full compliance with applicable laws – i.e. Indian”.
What happens next?
The sales spree is raising questions about how Adani’s business will continue to cover its costs.
The large debt load of the Adani companies – one of the concerns raised by Hindenburg – is under the microscope. Ratings agency Moody’s said on Friday that the turmoil was likely to reduce the group’s ability to raise capital.
In a statement late Wednesday, Adani emphasized that his business remains on solid footing and that executives will review their capital markets strategy “once the market stabilizes.”
“Our balance sheet is very healthy, with strong cash flows and safe assets, and we have an impeccable track record of servicing our debt,” he said.
The consequences of liquidation may not be attributable to Adani. Indian banks that hold Adani Group assets could also be affected if the value of those holdings continues to fall.
The Reserve Bank of India said on Friday that the banking sector “remains resilient and stable” based on its latest assessment and pledged to continue monitoring the situation.
In its first statement on the recent market turmoil, the Securities and Exchange Board of India (SEBI) said on Saturday that it had observed “unusual price movement in shares of a corporate conglomerate”. And he said that if any information reaches SEBI, it will be examined and “appropriate measures” will be taken.
The market regulator added that it “is committed to ensuring market integrity”.
India’s government and corporate sector on the defensive
At the same time, the ordeal is a source of growing political turmoil in New Delhi.
Opposition lawmakers in India have demanded an investigation into the Hindenburg report. They staged a protest in the country’s parliament on Wednesday as the country’s finance minister presented the annual budget.
His demands that normal business be suspended on Friday to allow an emergency debate on the Adani crisis led to an uproar, resulting in both houses of parliament being adjourned until Monday.
“Motion is being taken against Adani across the world but Prime Minister Modi is quiet,” tweeted the main opposition party in Congress. “When will our government act?”
Doubts about the health of Adani’s empire are clouding the outlook for India’s government and corporate sector, which just a few weeks ago were at the World Economic Forum in Davos, Switzerland, touting opportunities for foreign investors.
The country’s emissaries leaned on its relatively robust economic prospects. The World Bank projected last month that India would post the strongest economic growth of any major economy this year.
“The Adani saga opened a big can of worms,” said Manish Chowdhury, head of research at brokerage Stoxbox. “India’s story looks weak” to foreign investors right now, he adds.
— Diksha Madhok and Allison Morrow contributed to this story
Source: CNN Brasil
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