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US-based investment research firm Hindenburg Research has alleged that India’s Adani Group has indulged in stock manipulation and accounting fraud spanning decades. The alleged Adani fraud led to stocks of the group companies to fall as much as 10% on Wednesday, wiping off Rs 46,000 crore ($5.6 bn) in market cap.
Hindenburg Research, a short-sheller, said it held short positions in the Adani Group and sees the group on a “precarious financial footing”. The news comes days before the flagship firm Adani Enterprises is set to launch its Rs 20,000 crore follow-on public offer (FPO).
What is the Adani fraud allegation?
Adani Group, headed by founder Gautam Adani, the third richest man in the world, has been using offshore entities to evade tax and pump-up share prices of listed firms, accused Hindenburg.
The US-based investigative research firm claims that even without the allegations of fraud, the seven key listed firms from the Adani conglomerate have an 85% downside due to weak fundamentals and ‘sky-high valuations’.
Hindenburg claims it investigated the Adani fraud for two years, interviewed former executives and reviewed company documents, among other things. Gautam Adani’s rise in wealth by $100 bn over the past three years is largely due to the rise in the stock price of the seven key listed Adani firms, which have gained 819% during the said period.
The allegation says that the seven listed firms have significant debt as they pledged the inflated stocks as collateral for loans, while five of these companies have reported current ratios below ‘1’.
Meanwhile, some of the former executives described the company as a ‘family business’ as eight of the 22 key leaders belong to the Adani family.
Separately, the Adani Group has reportedly been subject to fraud investigations amounting to $17 bn, including allegations of money laundering, theft of tax dollars and corruption.
“Adani family members allegedly cooperated to create offshore shell entities in tax-haven jurisdictions like Mauritius, the UAE, and Caribbean Islands, generating forged import/export documentation in an apparent effort to generate fake or illegitimate turnover and to siphon money from the listed companies,” as per Hindenburg Research.
Adani Group’s total gross debt rose 40% to 2.2 tn rupees (~$27 bn) as of the year ending March 31, 2022. Previously, a unit of Fitch Group had said the Adani group was ‘overleveraged’ and there were concerns about high debt.
