Gautam Adani was the third-richest person in the world less than two weeks ago. The self-made Indian industrialist was wealthier than either Bill Gates or Warren Buffett, with a personal fortune estimated to be over $120 billion. Then, an American short seller named Hindenburg Research, who had stakes against Adani’s enterprises, accused him of perpetrating “the greatest scam in share-market history. “As investors withdrew their backing, Adani’s companies have lost $110 billion in value since that time, and his wealth has decreased by half, to just over $61 billion.
In a remarkable U-turn brought on by the continued collapse of its stock prices, India’s Adani Group postponed its $2.5 billion share offering late on Wednesday.
Before the Adani Enterprises share sale, Hindenburg Research criticised the Indian conglomerate in a report on January 24. This caused an $86 billion decline in the group’s domestically listed equities and a sell-off of its bonds that were listed overseas.
Wait wait what? who is Adani and Hindenburg right ? let me explain the story of the biggest con ever!
First let me share with you the story of Gautam Adani, a native of Gujarat in western India, who began as a commodities trader before establishing his empire. The relationship between Narendra Modi, the Indian prime minister, and his home state has long been questioned by Modi’s detractors.
Adani, a school dropout who amassed a $220 billion empire encompassing ports, power generation, airports, mining, edible oils, renewable energy, media, and cement, rose to become Asia’s richest man, Adani, who was the third-richest man in the world until last week, is now ranked number 15 on the Forbes rich list as a result of the collapse in the value of the Adani group’s equities. Hindenburg Research is a forensic financial research company that examines equity, credit, and derivatives. It was founded in 2017 by Nathan Anderson. It has a history of exposing corporate misconduct and betting against corporations.
Now let’s see who is behind this report, Nathan Anderson launched the activist short-selling-focused investment research company Hindenburg Research LLC in 2017 and it is situated in New York City. The company, which is named after the 1937 Hindenburg tragedy, which they see as a man-made preventable disaster, publishes public reports on its website that claim there has been corporate fraud and misbehaviour. They have written on Adani Group, Nikola, Clover Health, Kandi, and Lords town Motors among other companies. While holding short positions in the company before issuing reports, these papers also defend the practice of short selling and how it “plays a key role in uncovering wrongdoing and protecting investors.”
Hindenburg revealed that it has short holdings in Adani companies through derivatives traded outside of India and U.S.-traded bonds.
So now we know who is the culprit of the story and let’s move on to the dept of this biggest scam story,
Asia’s richest man Gautam Adani is in a tussle with the New York-based research firm Hindenburg. Adani group is India’s largest port operator and has businesses stretching across infrastructure and energy production. The financial research firm Hindenburg is widely known for taking short-selling bets on the most popular corporations that are overvalued or fraudulent. The research firm had released similar reports and had cashed in by taking short positions on many prominent US-based companies like Nikola Corporation, Riot Blockchain and a few others
In the last couple of days, Hindenburg has startled investors globally by releasing a report on the Indian multinational conglomerate Adani Group. The report alleges Adani group of stock manipulation and raised concerns about high debt and valuations. The firm has also alleged the group of accounting fraud and using offshore shell companies for money laundering. Gautam Adan’s wealth has grown massively in the last three years, this is a bit concerning as the global economy was under turmoil due to the pandemic and there was a fear of recession across the globe. The report has mentioned that through their holdings in the group Gautam Adani and his family have accumulated a fortune of over U.S. $120 billion, with over $100 billion of that coming in the past 3 years largely through meteoric appreciation of its stock price.
The stock prices have rocketed due to the debt-fuelled model the Adani group is running on, out of the 7 listed companies 5 are facing short-term liability problems which means that their total assets are lower than the amount of debt they have taken to run the business. The other major problem in this is that in a lot of these companies, the promoters are mortgaging their stocks, this kind of pledging is not a healthy sign for the business.
Hindenburg’s report has highlighted that a lot of the company management are involved in shady financial practices in the past. Rajesh Adani the managing director of Adani enterprise was arrested in fraud cases twice in 1999 and 2010, there are allegations against him for tax evasion. Samir Vora another Adani family member was accused of being a ringleader of a diamond scam. Many other members of the Adani family are involved in financial malpractice.
After the release of the report on 24 January the listed companies of the Adani conglomerate have plunged between 8%-56%, with Adani gas taking the biggest plunge of 56%. The report has caused the chairman of the Adani group to call off a $2.5 billion fully subscribed share sale (FPO). In a 400-page rebuttal, the Adani group has accused the Hindenburg report is an attack on India. These accusations have not helped to assuage the market. Many financial institutions like Citigroup and Credit Suisse have stopped accepting Adani groups securities as collateral against loans.
The road ahead for Adani group and its chairman seems to be dark and one with a lot of pitfalls lets hope it should not be the nightmare of the Indian economy and one more reason for the greatest recession in the world.