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Adani Group weighs 'punitive' action against Hindenburg Research that sent stocks crashing

Adani Group weighs 'punitive' action against Hindenburg Research that sent stocks crashing

Adani Group weighs 'punitive' action against Hindenburg Research that sent stocks crashing
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By Bloomberg  Jan 26, 2023 12:07:50 PM IST (Updated)

Adani Group's legal group head Jatin Jalundhwala in a statement on Thursday said that the volatility in Indian stock markets created by the Hindenburg report is of great concern and has led to unwanted anguish for Indian citizens. The Adani Group is also evaluating the relevant provisions under the US and Indian laws for remedial and punitive action against Hindenburg Research

Shares in Adani Group companies fell after well-known US activist investor Hindenburg Research LLC said it was shorting the empire’s stocks and accused firms owned by Asia’s richest man of “brazen” market manipulation and accounting fraud.

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Billionaire Gautam Adani’s flagship firm Adani Enterprises Ltd and Adani Ports and Special Economic Zone Ltd dropped as much as 2.5 percent and five percent respectively on Tuesday after Hindenburg, an US-based investment research firm that 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 Ltd and Ambuja Cements Ltd, acquired by Adani recently, also plunged.
Hindenburg’s report details a web of Adani-family controlled offshore shell entities in tax havens, from 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.
On its part, the Adani group in a statement has called the report malicious.
"We are shocked that Hindenburg Research has published a report on 24 January 2023 without making any attempt to contact us or verify the factual matrix. The report is a malicious combination of selective misinformation and stale, baseless and discredited allegations that have been tested and rejected by India’s highest courts," the statement reads.
It further goes on to question the timing of the report.
"... The timing of the report’s publication clearly betrays a brazen, mala fide intention to undermine the Adani Group’s reputation with the principal objective of damaging the upcoming Follow-on Public Offering from Adani Enterprises, the biggest FPO ever in India..."
The report was released on the same day that a key share sale from Adani Enterprises, aimed at attracting a broader network of investors, is set to open for subscription.
The broadside from Hindenburg comes at a critical time for the ports-to-power tycoon. 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.
Adani rocketed up the Bloomberg Billionaire’s Index last year past the likes of Bill Gates and Warren Buffett, and his fortune now totals $118.9 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 include Clover Health and Lordstown Motors.
Hindenburg said it had taken a short position in 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 7 key listed companies have 85% 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 that of peer companies both in India and around the globe, including firms in the Reliance empire of rival tycoon Mukesh Ambani — 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 firms — Adani Enterprises Ltd. Adani Green Energy Ltd, Adani Ports and SEZ Ltd, Adani Power Ltd, Adani Total Gas Ltd and Adani Transmission Ltd — stood at 1.88 trillion rupees as of March-end 2022.
Statement by Adani
The Adani Group is evaluating the relevant provisions under the US and Indian laws for remedial and punitive action against Hindenburg Research, that led to the stock price of the Group companies crashing down on Wednesday.
"The maliciously mischievous, unresearched report published by Hindenburg Research on 24 Jan 2023 has adversely affected the Adani Group, our shareholders and investors. The volatility in Indian stock markets created by the report is of great concern and has led to unwanted anguish for Indian citizens," said Jatin Jalundhwala, Group Head - Legal, Adani Group, in a statement.
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