On 24th January 2023, an America-based research company “Hindenburg Research LLC”, published a report levying significant allegations and accusations on the ex-world’s 3rd richest man and India’s richest man Gautam Adani, citing it as the world’s biggest corporate fraud. Gautam Adani’s net worth once abutted the benchmark of $120 Billion. Just after the release of the report, within 3 days, the Adani group lost a wealth of about $65 billion (approximately 4 lakh crores). Hindenburg Research LLC are so sure-shot about their report, that they openly challenged the legal team of the Adani group to file a lawsuit against them in court. Well, this makes the issue quite more crispier and interesting to explore! If even Hindenburg, loses the case, not even the law has to do anything, but they by themselves would have to bear loads of damages as they have done short selling of stocks of Adani group!

Knowing the Company

Hindenburg Research LLC was established in the year 2017, by Nathan Anderson. It is a financial research company. By profession, Nathan is a CFA (Chartered Financial Analyst) and a CAIA (Chartered Alternative Investment Analyst). The company aims to conduct financial analysis. The research is done on topics, hard to uncover and explore. Hindenburg’s name comes from a tragedy based in the year 1937. There was an airship by the name of Hindenburg past then. It was the largest airship in the world. These airships are quite rare nowadays but were then very common. Accidentally, one day, the airship caught fire, and 35 people lost their lives because of it. This was a very famous disaster of that time. Anderson compares disasters in the stock market to the Hindenburg disaster citing them as manmade avoidable disasters. Their organization aims to avoid such disasters in the stock market. Hindenburg’s business model is based on, first conducting financial research, exposing company fraud, then investing money in them and doing short selling to earn money. Probably, one of that prodigy business models, as I would say. But, this is quite risky, as while doing short selling, there is no upper limit to the losses that one has to bear.

Explanation: Now, when a user purchases a company’s stock, suppose, of Indian Oil worth Rs 500. Now the maximum loss that the investor can bear is up to 500 rupees, and that too in the worst and rarest case when the stock price of the company collapses to zero. Now, in short selling, the money is being invested upon the fact, that the stock will tend down, now in a case if the stock goes up, and that can happen up to any extent, then in that case, a person might have to bear losses above 20000 even if one invests just 500 in short selling as there is no upper cap to how much a stock can rise. This phenomenon in which the investor has to bear loss is known as a “Short Squeeze”.

Normal Stock Trading vs Short Selling

Generally, an investor invests in a particular stock with the aim that, one day the stock price of the company will rise and that day he/she will make profits. This is known as “Normal Stock Trading”. Now, then what does “Short Selling” mean? So, short selling is the complete opposite of this. It refers to the process of investing money, with the intent to make money, when the price of the stock will fall. Now, it’s quite obvious, someone will short-sell only and only when he/she is sure shot confirm that prices will fall as one must hold a valid strong point behind the fact that the company is overvalued.

Allegations on Adani Group

Adani group comprises 7 different subsidiaries of it as listed on the stock market. They are:

1. Adani Ports for building and managing ports. 
2. Adani Total Gas for gas distribution.
3. Adani Power for coal-based power generation.
4. Adani Green Energy which performs renewable energy generation.
5. Adani Enterprises which performs coal mining and trading.
6. Adani Transmission is engaged in power transmission.
7. Adani Wilmar, which is a joint venture with a Singapore-based company Wilmar’s International.

For the past few years, the operation of the Adani group was not so diversified and expanded and was majorly focused and based in the Gujarat region only. But, in the past few years, precisely 3 years, his business has experienced tremendous and exponential growth. This was the time when Gautam Adani’s net worth reached $120 billion making him the world’s third richest person! Out of this $100 Billion was generated within the past 3 years only. The report by Hindenburg is 106 pages long and titled “How The World’s 3rd Richest Man is Pulling the Largest con in Corporate History”. Hindenburg has spent over 2 years on this research. Allegations placed on Adani include Money Laundering, Stock Manipulation, Corruption, Building Offshore Shell Companies, Theft of Taxpayer Funds, and Accounting Fraud. Pointing the allegations:

1. Adani’s companies have been the focus of four different government fraud investigations as per the Hindenburg report. 

2. There have been points about, Gautam Adani’s younger brother, Rajesh Adani as well in the reports. In the year 2004, Rajesh was accused of fraud of Rs 1000 crore tax evasion, by the Directorate of Revenue Intelligence. Allegedly, he has been arrested twice for forgery and tax fraud. Later he was also promoted to managing director of the Adani group. 

3. The next allegations have been placed on Gautam Adani’s brother-in-law, Samir Vora. Allegedly, he has been the ringleader of the diamond trading scam. Later he was promoted to the ED of the Adani group Australia division.

4. Further accusations have been made against Gautam Adani’s elder brother Vinod Adani, for establishing offshore shell companies in different countries and allegedly doing money laundering. The report claims to identify, 38 such Mauritius-based shell companies, allegedly controlled by Vinod Adani and close associates and more in other tax haven countries such as Cyprus, UAE, Singapore and several Caribbean Islands. Many of these companies, don’t even have any obvious sign of operations, no employees, no independent addresses, phone numbers, websites or any online presence.

5. Hindenburg also claims that they have also filed several RTIs with SEBI, to confirm whether these offshore funds are projects of an ongoing investigation or not. They also claim that there is a Cyprus-based entity called “New Leaina Investments” whose net investment portfolio was 95% based on Adani Green Energy Shares, which has invested about $420 Million in it. This company was operated by an incorporation services firm Amicorp which has been also a key role player in the 1MDB International fraud scandal in Malaysia. 

6. Hindenburg has put on a total of 88 questions in front of Adani and asked for answers for the same.

Response from Adani Group

On 27th January, the first response from the Adani Group of companies was released titled “Myths of Short Seller”. In the report, they discuss how they have good credit ratings, and how Adani groups comply with all regulations as specified by the government bodies. On 25th January, the CFO of Adani Group said that the timing of the report portrays some other hidden malicious intentions behind the report. There has been an attempt to undermine the reputation of the Adani group and also attempts have been made to damage further public offerings by the Adani group. On 26th January, the Head Legal Expert of the Adani group threatened Hindenburg with severe legal actions, in response to which Hindenburg said, “Bring it on!” theorizing an open challenge to them. On 29th January, another response was given by Gautam Adani. Hindenburg’s 106-page long report was countered by a 413-long report! It discusses how the Hindenburg report has performed a “Selective and Manipulative presentation to set a false narrative in the Public Domain” and how there has been an attempt to undermine Indian Institutions. They have cited this as an attack on India. Out of 88 questions, Adani said, responses to 65 questions are already available publicly. The other 18 are based on public shareholders and other third parties, with which the Adani group holding has no accountability. And the remaining 5 are baseless or based on imaginary fact patterns.

Past Record of Hindenburg

Looking at its past track record, they have accused several companies such as Nikola, Wins Finance, Genius Brands, China Metal Resources Utilisation and many more in the past. To date since its incorporation, it has accused more than 30 companies. In 2020, they accused Nikola, soon after which the company's founder and executive chairman resigned from the company, and 2 years later, the shares of the company fell by 71%. In May 2020, Hindenburg targeted China Metal Resources Utilisation soon after which their share prices fell by a massive 90%. In June 2020, they targeted Genius Brands International, and the prices of the company fell from $6.68/share to just $1.5/share! As per Bloomberg’s report, Hindenburg has targeted about 30 companies since 2020, and their stocks on average have lost about 15% the next day and by 26% in the next 6 months!

Modi and Adani

Recently, Congress leader Rahul Gandhi and TMC leader Mahua Moitra raised the issue about the report in parliament questioning Narendra Modi about his alleged relations with Adani. Several photos have been going viral, where Modi has been seen travelling in a private chartered plane with Adani. Soon after these claims, Rahul Gandhi’s questions has been made off Parliament records! Some scams that portray some deep connection between Modi and Adani are:

1. Airport Scam In November 2018, the cabinet approved the privatisation of 6 airports. Privatisation of such profitable airports in itself is a questionable thing. But, then we will be going off-topic. PPPAC was set up for the same purpose, to look after it. Soon after, all 6 airports went to Adani groups who have no prior experience to operate these airports! A similar hijacking happened at the Mumbai airport. It was under the control of the GVK group. On 28th July 2020, ED (Enforcement Directorate) raids their Mumbai and Hyderabad offices. Also, the office of Mumbai International Airport Limited was raided which was co-working with the GVK group and aiding in Airport management. One month hence, Adani group acquired a 74% stake in this airport. The entire 50.5% stake of the GVK group was acquired by the Adani group.

2. Land ScamWhen PM Modi was Gujarat’s Chief Minister, different industries were given land for their projects. K Raheja corp got the land at the rate of 470 per sq meter, Maruti Suzuki got it at the rate of 670 per sq meter, Ford India, Tata Motors and TCS had to pay 1100 rupees per sq meter! Torrent power paid 6000 per sq meter! But, on the other hand, Adani just paid 32 rupees per sq meter to build the port and this was the maximum per sq meter payment made by him! At some locations, he paid just 1 rupee per sq meter! In April 2015, CAG presented their reports in Gujarat Assembly, They accused, that there has been foul play in classifying forest land in Gujarat which led to benefits of Rs 58.64 crores to Gautam Adani’s Mudra port. Narendra Modi became prime minister of India in May 2014, and in October 2014, there have been reports stating that the centre approved 370-acre forest land for Adani’s Power Project in Maharashtra. It was a 1980 megawatt (MW) coal-based thermal power plant which was to be set up. Later in 2018, another 142 hectares of land was sanctioned by both state and central governments headed by BJP in Maharashtra for Adani!

3. International Deals After every Modi foreign trip, it has been alleged that Adani was getting a deal in his bag. Some recent examples include Carmichael Coal Mine Deal in Australia, Haifa Port Deal in Israel and Container Terminal Deal at Colombo Port.

4. SBI underwrites Adani's Loan SBI underwrites the entire debt of Rs 12770 crore of Adani’s Navi Mumbai Airport. Underwrite means that, the bank will give financial support to the company and take responsibility for paying any costs if it fails. This was such a lucrative deal for Adani for sure, as even if they fail to pay back the loan, their loan will be written off!

The list is very long. Some other scams include Coal, ECT (East Container Terminal) scams and many others.

How Adani's loss can affect India?

Adani is in huge debt and loans., and now everyone is well aware of this. Based on his overinflated shares, he has picked up more loans. What Adani exactly has done is, he took a loan to build his company, again took a loan to increase the share price of his company, and then on that increased rate of stock, he again took more loans. This is known as “Debt Fuel Growth”. Now sometimes, it happens that the loan of the company even crosses apart the net assets of the company which is a very painful situation. At present, Adani has a loan of about 2 lakh crores on him of which 80000 crores is from Indian banks itself! In case, he fails to pay back the loans, the banks and common people like us would have to bear this loss. This is the reason why Adani’s loss can become a loss for India as well.

How Adani manipulated Stock Market?

The stock market works on the very basic principle of demand and supply. If stock demand is more and supply is less there will be a hike in stock price and if stock demand is less and supply is more stock price will be less. Now, what Adani did was, that he took control of the supplies. The free float of shares Adani in the market is very less as over 73% is with the promoters that are, it is basically with Adani himself. The maximum permissible is 75% as per government standards and regulations. Out of the remaining 27%, 15% is held by his elder brother through shell companies based in India. The remaining 10% have big investors such as LIC, SBI etc. So basically 3-5% remains for regular traders. Thus, as supply is so controlled, prices can be easily manipulated and controlled. Yes Bank has about 4 crores shares in the market whereas, on the other hand, Adani group has only 4 lakh shares. In this way, Adani manipulates the stock price of his company Several allegations have been raised in the past by trusted and reputed sources such as “The Morning Context” and “Fitch Group” about the same. They have also claimed that the stock prices of Adani Groups are overleveraged. They are overinflated by about 80%. So citing that Hindenburg Report is an attack against India is completely wrong! Even after the major downfall in the stock prices of Adani, the market is going up in India. Total losses of Adani group now peak at about $86 Billion. As of now, the net valuation of Adonis stands at just $30 billion and all his subsidiaries have experienced a downfall of about 80-85% in their stock prices.

Some other Key Updates:

1. Forbes accused Adani of self-purchasing $2.5 Billion shares, to inflate stock prices.
2. Credit Suisse, a Switzerland-based bank, has stopped accepting bonds of the Adani group as collateral for margin loans. It means it has assigned zero lending value to Adani Group bonds.
3. Adani group calls off its FPO, citing the reasons based on moral grounds.
4. Wikipedia alleged Adani, that he manipulated his Wikipedia accounts using sock puppet accounts or fake accounts and undisclosed paid editors.
5. Norway’s $1.35 trillion wealth fund has claimed that it has no more exposure left in Adani companies because of risks such as potential corruption, environmental damages and human rights abuses.
6. Adani’s unlimited credit card has come to a halt as now it's public that the company is deeply submerged in huge loans. Recently, Rs 7017 crore Adani power deal to acquire DB Power assets has been called off.
7. Recently, Adani acquired Israel’s Haifa port for $1.2 billion with a full cash payment to portray his power, and give trust to his investors.

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