Gautam Adani is the third richest man in the world - yet. According to estimates by Forbes magazine, his assets, which are largely based on company investments, amounted to 120 billion US dollars up until a week ago, meanwhile it is only 70 billion dollars. The fact that the value of his corporate empire collapsed so quickly is due to allegations by US short-seller Hindenburg Research.
Founded in New York in 2017, the company spent two years researching the Adani Group and is now accusing it of committing the "biggest fraud in the company's history". Specifically, the allegation is that Adani has "operated a brazen system of stock manipulation and accounting fraud" for decades. Through relatives, Adani used offshore letterbox companies to launder money in the Caribbean, among other places. That drove the share price and thus the valuations of the group of companies up. Up to 85 percent of the shares are therefore overvalued.
The Adani group itself rejected all allegations last week and declared that it acted "in accordance with all laws". Adani CFO Jugeshinder Singh described Hindenburg's allegations as a "malicious combination of selective misinformation and outdated, unsubstantiated and discredited claims," according to the Financial Times. Legal action will be taken against Hindenburg.
A counter-statement from the company released over the weekend also said the report was not based on independent facts but caused "serious and unprecedented negative impact on our investors."
This was not only reflected in the company's overall market capitalization, which had fallen by $50 billion as of Friday. At the beginning of the week, the share prices of the seven listed companies in the Adani Group continued to fall. Adani Green Energy suffered a slump of more than 18 percent, Adani Transmission and Adani Total Gas also lost.
The fact that the huge Adani group has tumbled has also had an impact on India's economy and financial markets. The share prices of the Indian banks and insurance companies involved in Adani also fell last week. Most importantly, the conglomerate is the leading employer and taxpayer in India. As one of the largest private infrastructure groups in the country, Adani is active in a wide variety of areas. It operates ports, airports, mining fields and coal-fired power plants. Adani has long been personally close to Indian Prime Minister Narendra Modi.
Adani also relies on this argument in his counterstatement. The "unfounded" and "misleading allegations" are also "a calculated attack on India, the independence, integrity and quality of Indian institutions, as well as India's growth history and ambitions," the Financial Times quoted him as saying.
Hindenburg responded in turn with his own letter. In it, the shortseller criticizes Adani for "associating his growth story with the success of India itself." However, the "suspicious transactions with offshore companies" were not taken into account. "Nationalism" and an "inflated response" could not cover up the fraud.
Behind Hindenburg Research are the 38-year-old founder Nathan Anderson and just ten employees. Short sellers like her are often unpopular because they bet on falling prices and put pressure on other companies for their own profit motives. The so-called shorts borrow shares in a company for a fee and sell them. If the stock price falls, they buy back the stock at a lower price, return it to the owner, and keep the profits for themselves.
Because hedge funds and companies like Hindenburg only win this bet if prices actually fall, they invest a great deal of time and money in scrutinizing companies. As unpopular as their methods may be, short sellers are often the only ones who still devote these resources and have the necessary expertise. In the best case, the "black sheep" of the economy are identified and fraud is uncovered.
The Hindenburg investigation comes at the worst possible time for Adani - the group had recently accumulated $24 billion in debt to expand into the media business. CreditSights' credit assessors had even warned that the company was "over-indebted." However, Adani said leverage remains healthy.
To fund the planned expansion, Adani is issuing $2.4 billion worth of stock through its industrial conglomerate Adani Enterprises. So far, only a small part of the shares has been subscribed. On Wednesday, Adani Enterprises announced that it would cancel the share sale due to the turbulence.
The article first appeared on capital.de