The Adani horror, a $50 billion bloodbath
In the past 72 hours, Indian mining tycoon Gautam Adani has watched his empire plummet by US$50 billion (A$70 billion) in market value.
On Wednesday Australian time, US activist investment group Hindenburg Research released a bombshell report accusing the Adani Group of allegedly defrauding for years.
“We uncovered evidence of brazen accounting fraud, stock manipulation and money laundering at Adani, which has been going on for decades,” Hindenburg said in a note.
Hindenburg also revealed that he took a short position in Adani Group, meaning he is betting the company’s share price will take a dive.
As expected, this sparked a bloodbath, with investors reacting to the news, triggering a sell-off.
On day one, US$12 billion (A$16 billion) was wiped out of Adani’s mining activity, formerly of US$218 billion (A$306 billion), and trading was halted on Thursday due to an Indian public holiday.
Then on Friday, another $50 billion (A$70 billion) was wiped out. The stunning loss came after its flagship company, Adani Enterprises, fell 19% while Adani Green Energy and Adani Total Gas fell 20%.
Even after the Adani Group issued a statement rejecting Hindenburg’s claims, the sale continued unabated.
Adani was slaughtered in the Indian stock market, performing the worst of any stock in the Nifty 50 index, when he lost more than 1.5%.
According to an expert, the damning report is of particular concern to investors, as India’s corporate rules mean companies lack the same level of transparency about how their business operates compared to other countries.
According to Gary Dugan, CEO of the Global CIO Office, “The problems strike at the heart of India’s corporate sector, where a number of family-controlled conglomerates dominate.
“By their very nature, they are opaque and global investors should trust matters of corporate governance.”
Mr. Adani’s personal fortune has also taken a hit, as much of it is linked to his businesses.
The 60-year-old multi-billionaire was officially the third richest person in the world on Wednesday, but at the time of writing he has now fallen to seventh place, according to Forbes’ billionaires tracker.
In total, it lost around US$19 billion (A$26 billion) in three days.
“The Adani Group has already been the subject of four major government fraud investigations which have alleged money laundering, theft of taxpayers’ money and corruption, totaling an estimated $17 billion,” Hindenburg said.
“Members of the Adani family allegedly cooperated to set up fictitious offshore entities in tax havens such as Mauritius, the United Arab Emirates and the Caribbean islands, generating false import/export documents in an apparent effort to generate a turnover figure. ‘false or illegitimate business and to siphon off money from listed businesses.’
Hindenburg said his two-year investigation “involved speaking with dozens of people, including former senior Adani Group executives, reviewing thousands of documents and conducting on-site due diligence visits to nearly ‘half a dozen countries’.
Almost immediately, the Adani Group hit back at the shock claims.
The Adani Group’s chief financial officer, Jugeshinder Singh, issued a scathing statement describing them as “a malicious combination of selective misinformation and outdated, baseless and discredited allegations”.
Mr Singh also criticized the timing of the report – which came just as Adani Enterprises was preparing to complete a multi-billion dollar follow-on public offering this week.
Hindenberg has successfully taken on dozens of other companies in recent years, including Twitter and electric vehicle maker Nikola, leading to similar stock drops.
The company drives down its targets by thoroughly researching the company in question, betting that its stock will drop, and then making as much noise as possible about its research, including via social media.
— With Alexis Carey