Shares in Adani Group companies fell after US investor Hindenburg Research LLC said it was shorting the empire's stocks and accused firms owned by Asia's richest man of "brazen" market manipulation and accounting fraud.
Billionaire Gautam Adani's flagship firm Adani Enterprises Ltd. and Adani Ports and Special Economic Zone Ltd. dropped as much as 3.7 per cent and 7.3 per cent respectively on Wednesday despite relatively small free-floats after Hindenburg, an US-based investment research firm that specializes in activist short-selling, made wide-ranging allegations of corporate malpractice following a two-year investigation into the tycoon's companies.
Cement makers ACC Ltd. and Ambuja Cements Ltd., Adani's recent acquisitions which are more widely traded, plunged by as much as 7.2 per cent and 9.7 per cent.
Hindenburg's report details a web of Adani-family controlled offshore shell entities in tax havens, from the Caribbean and Mauritius, that it claims were used to facilitate corruption, money laundering and taxpayer theft, while siphoning money from the group's listed companies.
Representatives for the Adani Group didn't immediately respond to calls and emails seeking comment, saying the company would issue a statement in response later.
The report was released on the same day that a key share sale from Adani Enterprises, aimed at attracting a broader network of investors, is set to open for subscription.
The broadside from Hindenburg comes at a critical time for the ports-to-power tycoon. Adani is seeking to raise his international profile and is aggressively branching into new businesses, including cement and media, in his power base of India, where he is seen to enjoy a close relationship with Prime Minister Narendra Modi. The Adani empire's expansion plans are closely aligned to the government's development and economic goals.
Adani rocketed up the Bloomberg Billionaire's Index last year past the likes of Bill Gates and Warren Buffett, and his fortune now totals $118.9 billion, making him the fourth-wealthiest person in the world.
A prominent research outfit, Hindenburg is best known for its critical reports on the electric vehicle space. It was instrumental in bringing down the founder of e-truck company Nikola Corp., which was accused by Hindenburg in 2020 of being built on "dozens of lies." Nikola founder Trevor Milton eventually stepped down as chairman and was found guilty of securities fraud. More recent targets include Clover Health and Lordstown Motors.
Hindenburg said it had taken a short position in Adani's companies through U.S.-traded bonds and non-Indian-traded derivative instruments. "Even if you ignore the findings of our investigation and take the financials of Adani Group at face value, its 7 key listed companies have 85 per cent downside purely on a fundamental basis owing to sky-high valuations," Hindenburg said in the report.
Adani companies trade at price-to-earnings ratios many times that of peer companies both in India and around the globe, including firms in the Reliance empire of rival tycoon Mukesh Ambani "- Adani's predecessor as Asia's richest man. There are some signs that the bull run is slowing, with most Adani group stocks starting the year with declines even before Hindenburg's report.
Investors and analysts have also flagged concerns over the high levels of debt seen in the empire's listed units. Gross debt at six Adani firms "- Adani Enterprises Ltd. Adani Green Energy Ltd., Adani Ports and SEZ Ltd., Adani Power Ltd., Adani Total Gas Ltd. and Adani Transmission Ltd. "- stood at 1.88 trillion rupees as of March-end 2022.
