On 24 January 2023 Hindenburg Research accused India’s Adani group of stock manipulation and accounting fraud. The group denies it, lost tens of billions in market value and on 1 February withdrew its share offering.
On 24 January 2023, Hindenburg Research, a US firm that invests short, that is, betting on the fall of the companies it analyses, published a report against India’s Adani group. Its title described it as “the largest con in corporate history” and its founder, Gautam Adani, as the world’s third-richest man. A week later, on 1 February, the listed parent company, Adani Enterprises, withdrew a share offering of about $2.5 billion that had just been fully subscribed. This note summarises what was known on 2 February.
What the report says
According to Hindenburg, which says it investigated for two years, the group has allegedly practised stock manipulation and accounting fraud for decades. The report points to the use of offshore entities linked to Vinod Adani to channel money into listed companies, Mauritius funds allegedly controlled by people close to the group, high debt, pledged shares and weak financial controls. It also claims that its seven key listed companies had valuations with more than 85% downside, and puts 88 questions to the group.
Hindenburg declared that it holds short positions, through US-traded bonds and non-Indian-traded derivatives, so it can profit if the group’s value falls. That does not by itself invalidate what it claims, but it is worth bearing in mind when weighing the report. According to the report itself, the group was worth about 17.8 trillion rupees on the stock market, about $218 billion, when it was published.
The group’s response
The Adani group rejected the allegations. On Sunday 29 January it published a 413-page response in which it called the report a “calculated attack” on India’s institutions and growth story and said it sought to create a false market in securities. It maintained that 65 of the 88 questions concerned matters its companies had already disclosed, said it complied with all applicable law and announced it would consider legal action. Hindenburg replied on 30 January that fraud cannot be obscured by nationalism and that the group had not answered most of its questions specifically.
Meanwhile, Adani Enterprises, the flagship company, had launched a share offering of 20,000 crore rupees, priced at 3,112 to 3,276 rupees a share. The offering was fully subscribed on 31 January. According to the press, investors included Abu Dhabi’s IHC, with $400 million, and businessmen Sajjan Jindal and Sunil Mittal.
The withdrawal of the offering and the stock market fall
On 1 February the board of Adani Enterprises decided to withdraw the offering and return the money to investors, citing market volatility. Gautam Adani, the group’s founder and chairman, said that, given the extraordinary circumstances, going ahead would not be morally correct and that investors’ interests came first. The company said it was working with its advisers to return the money held in escrow and release the amounts blocked in investors’ accounts.
In those days the group lost a very large part of its market value: about $86 billion, according to Reuters, and $92 billion, according to another outlet; the Indian press spoke of more than 7 trillion rupees. The calculations vary depending on the date and the companies included.
An accusation is not a verdict: Hindenburg’s claims are unproven, the group denies them and, at the date of this note, no court ruling on the merits is known. Anyone with exposure to the group, directly or through funds, can review how much it weighs in their portfolio, in which instruments (shares or bonds) and what information the company publishes. Consult your adviser on how it applies to your case.
A report, a response and a withdrawn offering in little more than a week: market confidence is built slowly and lost quickly.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
